Overview
The Lifetime ISA's withdrawal charge is widely described as "you just lose the bonus". That is wrong, and the difference is real money.
The government adds 25% to what you pay in. The charge takes 25% off what you take out. Those are percentages of different numbers, and the second number is bigger — so the charge removes more than the bonus added.
Quick Answer (Read This First)
The withdrawal charge is 25% of the amount you withdraw, including the government bonus. Because the bonus inflated the balance first, taking 25% off the larger figure leaves you with less than you contributed.
On a clean example: pay in £4,000, receive a £1,000 bonus, withdraw the £5,000, pay a £1,250 charge, and receive £3,750. That is a 6.25% loss on your own money — before any interest or growth is considered.
Why It Is 6.25% and Not 0%
Work it through slowly, because the arithmetic is the whole point.
| Step | Amount |
|---|---|
| You contribute | £4,000 |
| Government bonus at 25% | £1,000 |
| Account balance | £5,000 |
| Withdrawal charge at 25% of £5,000 | −£1,250 |
| You receive | £3,750 |
| Loss against your contribution | £250 (6.25%) |
The bonus added £1,000. The charge removed £1,250. The £250 difference is 6.25% of the £4,000 you put in.
The reason is straightforward: 25% of a larger number exceeds 25% of a smaller one. Adding 25% then subtracting 25% never returns you to where you started — it leaves you at 93.75% of the original.
This holds at any amount, because the percentages are fixed. Withdraw £500 of your own contributions and you still lose 6.25% of it.
It Applies to Growth and Interest Too
The charge is levied on the whole withdrawal, not just contributions and bonus. Interest earned in a Cash LISA, or investment growth in a Stocks and Shares LISA, is inside the balance and is charged at the same 25%.
That has an awkward consequence for long-held accounts. The larger the balance has grown, the more the charge takes in absolute terms — so a LISA that has performed well is more expensive to exit, not less.
IMPORTANT
There is no partial-charge mechanism and no hardship exemption in the ordinary rules. If the withdrawal is not for a qualifying purpose, the charge applies in full regardless of the reason.
The Three Charge-Free Exits
The charge does not apply if you withdraw for:
- A qualifying first home — £450,000 or under, in the UK, bought with a mortgage, as your main residence, with the account open at least 12 months
- Reaching age 60 — any purpose, free of charge and free of tax
- Terminal illness — a diagnosis with less than 12 months to live
Everything else triggers it. The cases that catch people are specific and worth naming.
The Near-Misses That Cost Most
The property costs more than £450,000. The cap is absolute. A purchase at £455,000 is not partially qualifying — the entire withdrawal is charged. In higher-priced areas this is the single biggest risk of the product, and the cap has not moved with house prices.
You buy without a mortgage. A cash purchase does not qualify, even for a genuine first-time buyer within the price cap.
You already owned property, anywhere. Inheriting a share of a house, or having owned abroad, generally removes first-time-buyer status.
The account is under 12 months old. Buying before the account's first anniversary means the withdrawal is charged even though everything else qualifies.
You need the money for an emergency. There is no exemption for redundancy, illness short of terminal diagnosis, or any other hardship.
In each case the loss is 6.25% of what you contributed, plus 25% of any growth.
What to Do Instead of Withdrawing
Transfer, do not withdraw. Moving to another LISA provider — including switching between a Cash LISA and a Stocks and Shares LISA — is a transfer, not a withdrawal, and carries no charge. Our guide on moving a LISA between providers covers the process.
Leave it until 60 if you can. If the money is not needed for a house and you can meet the need elsewhere, leaving the balance untouched turns a charged withdrawal into a charge-free one later.
Draw on other savings first. Money in an ordinary savings account or a Cash ISA can be accessed without penalty. Where you hold both, the LISA should be the last account you touch.
Check the purchase against the rules before committing. The price cap, mortgage requirement and 12-month rule are all knowable in advance. Most charged withdrawals on house purchases were avoidable at the offer stage.
Does the Replacement Fix This?
Partly, and only for future savers. The government is consulting on a First Time Buyer ISA to replace the LISA, closing on 18 August 2026. The stated design pays the bonus at the point of purchase rather than crediting it as you save, which removes the need for a withdrawal charge entirely — savers whose circumstances change would not be penalised.
That does not change the position for money already in a LISA. Existing accounts continue under the existing rules, charge included, indefinitely. Full detail is in our Lifetime ISA guide.
Frequently Asked Questions
Looking for more on this topic? Browse all our savings guides.
Sources and Further Reading
This guide is based on UK primary legislation, regulator handbooks, and official guidance. The following sources cover the rules described above:
- Lifetime ISA — GOV.UK
- Individual Savings Account Regulations 1998
- First Time Buyer ISA consultation — GOV.UK
- HM Revenue & Customs
Free, impartial money guidance is available from MoneyHelper, the government-backed service run by the Money and Pensions Service.
Related: Lifetime ISA Explained | LISA Bonus Not Paid? | All savings guides.
