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Warning to Lifetime ISA holders – some have just days left to withdraw savings penalty-free as providers set early deadlines

Lifetime ISA providers are setting early deadlines for savers who want to withdraw cash penalty-free without using it for a first home or retirement – so if you want to do that, don't wait until the official early April cut-off. In some cases savers have just days to make a penalty-free withdrawal – we've a full provider-by-provider breakdown below. 

A Lifetime ISA (LISA) lets you save up to £4,000 a year towards your first home or retirement and gives you a 25% cash bonus of up to £1,000 a year on top. Normally, you're charged 25% of the amount withdrawn if you take cash out before you turn 60 and you're not buying a property – which, after you factor in the bonus, effectively works out as a 6.25% withdrawal penalty. But this charge was temporarily reduced to 20% last March, as a measure to help those struggling due to coronavirus, making withdrawals effectively penalty-free. 

However the withdrawal charge will go back to the usual 25% early next month, and crucially as withdrawals must be completed rather than just requested before the rules change, that means you'll have to sort it earlier to beat the deadline. For more info on how LISAs work, as well as our top picks, see our Lifetime ISAs guide.

The withdrawal penalty officially goes back to 25% on 6 April

Following the temporary reduction, the withdrawal charge will revert to the normal 25% level on 6 April. In effect, this higher penalty recoups the bonus plus an additional charge equivalent to 6.25% of the money you put in.

At first glance the fact you've had a 25% bonus added and then a 25% penalty would seem to leave you back where you started. Yet unfortunately the maths doesn't work like that...

Imagine you saved £1,000 by April 2021 and so got a £250 bonus (due in May). You'd have £1,250 total (ignoring interest, for ease). If you withdrew it in June, and closed the account, the 25% penalty would be £312.50. So you'd only get £937.50 back.

Some have called for the lower withdrawal penalty to be made permanent. But responding to a petition asking for that, the Government insisted the 25% withdrawal charge "protects the Lifetime ISA's status as a long-term savings product".

To beat the return of the penalty, you actually need to withdraw cash sooner

HM Revenue and Customs has confirmed that, due to a specific rule LISA providers must follow on withdrawals, it's the date your withdrawal is actually completed – not requested – which determines the penalty you're charged. So if you need to take money out of your LISA and want to avoid the higher penalty, your withdrawal must be completed before 6 April. Since withdrawals can take several days to process, in practice this means you now have less than two weeks to request one with most providers.

We asked all the cash LISA providers, and some of the top stocks & shares LISA providers, what deadlines they've set and have listed these below. If you have a LISA from a different provider, check with it directly about its deadline for withdrawals to ensure you request it in time.

Lifetime ISA withdrawal deadlines

Provider Deadline for requesting withdrawal (to avoid higher penalty)
Cash LISAs
Moneybox (cash LISA) Midday, Wednesday 31 March
Paragon Bank Midday, Thursday 1 April
Nottingham Building Society 3.30pm, Thursday 1 April
Newcastle Building Society 4pm, Thursday 1 April
Skipton Building Society 4pm, Thursday 1 April
Stocks & shares (investment) LISAs
Moneybox (S&S LISA) Midday, Thursday 25 March
Nutmeg 8am, Monday 29 March
AJ Bell 5pm, Monday 29 March (i)
Hargreaves Lansdown Midday, Thursday 1 April (i)

(i) Important: This is the deadline for withdrawing settled cash from your account. If you're invested, you'll first need to sell your holdings and then wait for the cash proceeds to settle before you can withdraw – this takes up to five working days, so make sure you take this extra time into account.

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