The withdrawal penalty has been cut from 25% to 20% for savers who want to access their funds early during the coronavirus crisis.
Lifetime Isa (Lisa) savers affected by the coronavirus pandemic will no longer have to pay an additional withdrawal charge if they want to access their funds early.
The government says it is temporarily relaxing charges for anyone with a Lisa who wants to access their cash during the current financial year.
Until now, savers paid a penalty of 25% on withdrawals for any reason other than putting down a deposit on their first house up until their 60th birthday.
The government has now cut the penalty to 20% until April 2021.
This means account holders will only have to pay back the government bonus they have received and not the additional withdrawal charge of 5%.
Savers will get back all they money that they put in, unless their Lisa was invested in stocks and shares.
The Lisa was introduced in April 2017 and can be opened by anyone aged 18-40. Lisa savers can put away up to £4,000 a year until they are 50 and they are seen as the long-term replacement for Help to Buy Isas.
It can be used by first-time buyers to fund a deposit for a property or taken tax-free at the age of 60, with a tempting 25% bonus on offer.
John Glen, the economic secretary to the Treasury, says: “We know that some people are experiencing financial difficulties during these unprecedented times and we want to make it as easy as possible for people to access their savings, especially if it helps them avoid falling into high cost or unmanageable debt.
“That’s why we are reducing the withdrawal charge for Lifetime Isas, so people can access their funds to help get them back on their feet."
The rule change will be backdated to 6 March, so anyone who has withdrawn their money early since that date and paid a 25% charge will have the difference refunded.
Carol Knight, chief operating officer at The Investing and Savings Alliance (TISA), says the decision to relax the withdrawal charge is a “fantastic step” and will make a significant difference to people affected by coronavirus.
- This article was originally written by our sister website Moneywise
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
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