The Lifetime ISA allows those aged between 18 and 40 to save for a new home or for their retirement. Under the scheme, the government provides a 25% bonus on yearly savings of up to £4,000 and once you start saving before you are 40, you can continue using the scheme until you turn 50. The money held in a Lifetime ISA can be used to purchase a first home worth up to £450,000 anywhere in the UK or withdrawn tax-free after your 60th birthday.
The money invested in a Lifetime ISA can be used for other purposes but is usually subject to a withdrawal charge. Under a temporary rule change, people whose income has been affected by Coronavirus and who want to access their Lifetime ISA funds early will no longer face this withdrawal charge. The only other exception is if a saver is terminally ill and given less than 12 months to live.
The Treasury will legislate for a temporary reduction in the Lifetime ISA withdrawal charge to 20% for the current tax year, from 6 March 2020 until 5 April 2021. This means you will only have to pay back any government bonus you have received but will not pay the additional withdrawal charge of 5%. This means that if you put £1,000 into the scheme and had £1,250 after the bonus then if you withdraw this amount you will lose the bonus but will receive your full £1,000 back.
The rule change will be backdated to 6th March, so anyone who has withdrawn their money early since that date and paid a 25% charge will have the difference refunded.