Lifetime ISA penalties rack up £9m for HMRC since 2017
22 December 2019
Young people saving into a Lifetime ISA have been hit with huge tax penalties for withdrawing their money, according to figures obtained from HM Revenue & Customs by Royal London.
A Freedom of Information request by Royal London revealed HM Revenue & Customs has charged young people more than £9 million since the introduction of Lifetime ISAs in 2017.
The first withdrawal charges were levied in 2018/19 and a total of £4.35 million was paid to HM Revenue & Customs in that year. But the pace of charges has increased with a further £4.69m paid in the first seven months of 2019/20 alone.
The Lifetime ISA allows those aged under 40 to deposit up to £4,000 per year towards a house deposit or pension, with the promise of a 25% top up by the government. However, savers who need to access the money in their LISA for a reason other than a house deposit face a penalty charge. They must hand back the government top up and pay an additional charge on any withdrawals.
Royal London’s calculations show that if someone put aside £80, the government would top it up to £100. However, if they decided to withdraw their money, they would be expected to pay back the additional £20 and a further £5 penalty. This means their original investment would decrease from £80 to £75.
Steve Webb, director of policy, Royal London, has called for the penalty charge to be scrapped.
He said: “A Lifetime ISA can be attractive for those who are clear about their plans to put down a deposit on a house and who are confident that they won’t need the money for any other reason. But these figures are a stark reminder that things can change.
“It is hard to see why the government should fine people whose only ‘crime’ was to put money aside in the hope of buying a home and then see their circumstances change. The LISA would be a much attractive product if this penalty charge was abolished.”
ATEB Consulting’s Steve Bailey looks at how the FCA’s view of suitability and what that means in practice for...
Paraplanners who have been furloughed and are concerned that their company will not have a job for them should...
The Supreme Court has ruled that a pension transfer made in ill health should not be subject to inheritance...