Withdrawal penalty on April 6 is officially 25%
After the temporary reduction, the withdrawal fee will return to its normal level of 25% on April 6th. In fact, this higher penalty makes up for the bonus plus an additional fee equal to 6.25% of the deposited money.
At first glance, the fact that you received a 25% bonus and then a 25% penalty seems to leave you where you started. Unfortunately, the math doesn’t work like that …
Imagine you saved £ 1,000 and received a bonus of £ 250 by April 2021 (due in May). You would have a total of £ 1,250 (no interest ignoring the interest). If you withdraw it in June and close the account the 25% fine is £ 312.50. So you would only get back £ 937.50.
Some have called for the lower withdrawal penalty to be made permanent. However, in response to a petition to this effect, the government insisted that the 25% withdrawal fee “protects the status of the lifelong ISA as a long-term savings product”.
In fact, to avoid the penalty repayment, you need to withdraw cash earlier
HM Revenue and Customs has confirmed that due to a certain rule that LISA providers must adhere to when making withdrawals, the date that your withdrawal is actually completed – not requested – will determine the penalty you will be charged. So if you need to take money out of your LISA and you want to avoid the higher penalty, your withdrawal must be completed before April 6th. Since withdrawals can take several days to process, in practice you have less than two weeks to request one from most providers.
We asked all of the Cash LISA providers and some of the top LISA providers for the deadlines they set and we listed them below. If you have a LISA from another provider, check with them directly for the withdrawal deadline to ensure you request it on time.