The Lifetime ISA withdrawal penalty: how the 25% charge works
A Lifetime ISA adds a 25% government bonus to what you pay in. Take money out for anything other than a first home, turning 60 or terminal illness and you pay a 25% withdrawal charge — and because the charge is worked out on a bigger number than the bonus was, you get back less than you put in. Here is how it works, using GOV.UK's own figures.
The Lifetime ISA in brief
- You must be 18 or over but under 40 to open one, and make your first payment before you are 40.
- You can pay in up to £4,000 a year until you are 50. That £4,000 counts towards your overall ISA allowance of £20,000 for 2026 to 2027.
- The government adds a 25% bonus, up to £1,000 a year.
- From 50 you cannot pay in or earn the bonus, but the account stays open and keeps earning interest or investment returns.
- You can hold cash, stocks and shares, or both.
When you can take money out without a charge
GOV.UK lists three situations:
- you are buying your first home (and meet all the conditions below)
- you are aged 60 or over
- you are terminally ill, with less than 12 months to live
If you die, the Lifetime ISA ends on the date of death and there is no charge to withdraw the funds. For any other reason, GOV.UK says you will pay a withdrawal charge of 25% — this is called an "unauthorised withdrawal".
Why 25% takes back more than the 25% bonus
The bonus is 25% of what you pay in. The charge is 25% of what you take out, which already includes the bonus. GOV.UK's first example, assuming no growth:
| Step | Amount |
|---|---|
| You pay in | £800 |
| Government bonus (25%) | + £200 |
| Pot | £1,000 |
| Withdrawal charge (25% of £1,000) | − £250 |
| You receive | £750 |
GOV.UK describes the charge as recovering "the government bonus you received on your original savings". But you end with £750 from £800 of your own money, so the bonus is gone and £50 of your savings with it. That £50 is 6.25% of what you paid in, and the same proportion applies at any size when there has been no growth.
Worked example: a full year's £4,000
- You pay in £4,000 and receive the maximum £1,000 bonus: pot £5,000.
- Withdraw it all for a non-qualifying reason: charge £1,250.
- You receive £3,750 — £250 less than the £4,000 you put in.
Growth changes the result, because the charge applies to the whole value including any interest or investment gains. If that same pot had grown to £6,000, a full unauthorised withdrawal would cost £1,500 and leave £4,500. A pot that has fallen in value loses 25% of the lower figure.
Taking out only part of the money
If you only need some of it, GOV.UK says you have to "withdraw more than the amount you need, to cover your needs and the 25% withdrawal charge". Its second example: to cover a £120 bill you withdraw £160, pay a £40 charge and receive £120.
The working is simple: divide the cash you need by 0.75. To end up with £3,000 in your hand you would withdraw £4,000 and pay £1,000 in charges.
| Cash you need | Amount to withdraw | Charge |
|---|---|---|
| £120 | £160 | £40 |
| £1,500 | £2,000 | £500 |
| £3,000 | £4,000 | £1,000 |
| £7,500 | £10,000 | £2,500 |
The first-home rules: price cap and timing
A withdrawal for a first home is only charge-free if all of these apply:
- the property costs £450,000 or less
- you buy it at least 12 months after your first payment into the Lifetime ISA
- you use a conveyancer or solicitor, and the ISA provider pays the money directly to them
- you are buying with a mortgage
The £450,000 limit is a cap on the property price, not on your savings. Because the first-home exemption needs every condition to be met, a withdrawal towards a home costing £450,001 or more, or one completed less than 12 months after your first payment, is not on the list of charge-free reasons — so the 25% charge would apply to whatever you took out.
You also cannot use the savings if the mortgage is a private one from a relative (a parent, grandparent, child, grandchild or sibling), from your spouse or civil partner, or from certain other family connections that GOV.UK lists.
Buying with someone else
If the person you are buying with has a Lifetime ISA too, you can both use your savings and bonus, as long as you are both first-time buyers and both meet the conditions above.
If you also have a Help to Buy ISA
You can only use the government bonus from one of them towards your first home. Moving money from a Help to Buy ISA into a Lifetime ISA is allowed; moving money the other way triggers the 25% charge.
Transfers count too
GOV.UK says you will pay the 25% charge "if you withdraw money or transfer the Lifetime ISA to another type of ISA before 60". So switching a Lifetime ISA into an ordinary cash or stocks and shares ISA before 60 is treated like a withdrawal. GOV.UK's ISA guide also says there are restrictions on the transfers you can make if you have a Lifetime ISA, so check with the provider before moving one.
Quick checklist before you withdraw
- Is the reason one of the three on GOV.UK's list (first home meeting all conditions, aged 60+, terminally ill)?
- For a home: is the price £450,000 or less, is it at least 12 months since your first payment, and is a conveyancer handling it with a mortgage?
- If none applies: the amount you receive is 75% of what you withdraw, and you need to withdraw cash ÷ 0.75 to receive a set amount.
Frequently asked questions
How much is the Lifetime ISA withdrawal penalty?
It is a 25% charge on the amount you withdraw, including the government bonus and any growth. With no growth you get back less than you paid in: GOV.UK's example turns £800 of savings plus a £200 bonus into £750 after the £250 charge.
Do I lose my own money with the Lifetime ISA penalty?
Yes, if there has been no growth. Because the 25% charge is applied to a pot that already includes the 25% bonus, you lose the bonus plus 6.25% of what you paid in. A full year's £4,000 plus a £1,000 bonus becomes £3,750 after the charge.
When can I take money out of a Lifetime ISA without a charge?
When buying your first home and meeting every condition (price £450,000 or less, at least 12 months after your first payment, through a conveyancer or solicitor, with a mortgage), when you are 60 or over, or if you are terminally ill with less than 12 months to live. There is also no charge after death.
What is the Lifetime ISA house price limit?
£450,000. The property must cost £450,000 or less for a withdrawal towards a first home to be free of the 25% charge.
How much do I need to withdraw to get a set amount of cash?
Divide the cash you need by 0.75. GOV.UK's example: to cover a £120 bill you withdraw £160 and pay a £40 charge. To receive £3,000 you would withdraw £4,000 and pay £1,000.
Sources
- GOV.UK — Lifetime ISA (all sections) — read 18 October 2026
- GOV.UK — Individual Savings Accounts (ISAs) — read 18 October 2026
Examples beyond GOV.UK's own were worked with the engine behind our Lifetime ISA calculator (charge = 25% of the amount withdrawn; amount to withdraw = cash needed ÷ 0.75). They assume no growth unless stated.
Prepared and reviewed by the Calcistry editorial team · Reviewed · Editorial policy
General information, not financial or tax advice. Rules and rates can change; check GOV.UK or the relevant tax authority for your own circumstances.
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