Lifetime ISA penalty and withdrawal rules
Last updated on
Jun 22, 2026 21:58
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A Lifetime ISA (LISA) is a savings account designed to help people save for their first home or later life, with the Government adding a bonus on top of what you put in. But withdrawing from it before age 60, for anything other than your first home, usually means paying a 25% withdrawal charge. Because the charge applies to the full amount you take out, not just the bonus, you lose the bonus plus 6.25% of your own savings, too.
The withdrawal rules catch more people out than you'd think. Plans change, purchases fall through, and some buyers only realise the penalty works this way when they try to access the money.
This guide explains how the Lifetime ISA withdrawal charge works, when you can withdraw penalty-free, how the house-purchase process works, and what the latest 2026 reform discussions could mean for existing savers.
If you're early in your buying journey, it helps to understand the wider picture around first-time buyer mortgages.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The Lifetime ISA withdrawal charge is a 25% fee applied by HM Revenue and Customs (HMRC) to non-qualifying withdrawals. You'll also hear it called the Lifetime ISA penalty or LISA withdrawal penalty, although HMRC officially refers to it as a government withdrawal charge.
That means a non-qualifying withdrawal can leave you with less than you originally paid in. If you want to understand the basics first, read about how the Lifetime ISA works.
A qualifying withdrawal covers only a small number of specific situations. If your withdrawal doesn't meet those rules, the charge is triggered automatically.
The 25% LISA penalty is calculated on the full withdrawal amount, not just the government bonus. That's why the maths works out as losing the bonus plus 6.25% of your own savings.
The calculation works like this:
You lose the full bonus and £250 of your own money.
The same maths at two contribution levels:
Examples exclude any interest or investment growth. If your LISA has grown, that growth is also part of the amount used for the charge.
Investment values can go down as well as up, and returns aren't guaranteed.
If you want to understand how your deposit could shape your wider home-buying budget, see how your deposit affects what you can borrow.
There are five situations where you can withdraw from a Lifetime ISA penalty-free. If your reason doesn't fall into one of these, the withdrawal charge usually applies.
ISA transfers are a common source of confusion. Only transfers to another LISA are penalty-free. Moving your money from a LISA to a Cash ISA or Stocks and Shares ISA counts as a withdrawal and can trigger the charge.
If you are thinking about using your LISA for anything other than your own home, remember that it cannot be used for buy-to-let mortgages.
If you're deciding between older schemes and newer ones, it may also help to read about the closed Help to Buy ISA.
If you are using your Lifetime ISA towards a house purchase, do not withdraw the money yourself. Your provider must send the funds to your conveyancer, or the withdrawal can trigger the 25% charge even if the purchase itself qualifies.
Here’s how the process usually works:
It helps to understand what your conveyancer does before you get too far into the process. It is also smart to get a Mortgage in Principle early, so you know your budget before starting to make offers.
Most LISA penalty charges happen by mistake, not because someone intentionally breaks the rules. Most people get caught out by small admin mistakes or assumptions they didn’t realise were wrong.
Seven mistakes worth knowing about:
Many buyers also keep separate emergency savings outside their LISA, so unexpected costs do not force an early withdrawal.
If you're getting financial support toward your purchase, it may also help to read about gifted deposits and family help and the First Homes scheme too.
If a house purchase does not complete, your conveyancer must notify your LISA provider within 10 working days of the final outcome, and the money will usually need to be returned to your LISA. If that does not happen, the 25% charge can apply retrospectively.
A failed purchase doesn't automatically mean you lose your LISA benefits forever. If the funds are returned correctly, they keep their LISA status and you can use them again on another qualifying property.
If the delay is temporary rather than final, your conveyancer can usually ask for an extension. That gives you more time to complete without turning the release into a non-qualifying withdrawal.
The Lifetime ISA is not being scrapped for now. In the November 2025 Budget, the Government announced plans to consult in early 2026 on a replacement first-time-buyer savings product.
Source: HM Treasury Budget announcements and Government consultation proposals published in 2025 and 2026.
That announcement got a lot of attention, but it doesn't change the current rules. The 25% withdrawal charge still applies in full, the £450,000 property cap still stands, and existing account holders can still receive the 25% government bonus under the current rules.
Calls to reform the Lifetime ISA have been growing for a while. A Treasury Select Committee report published in 2025 called for changes to both the withdrawal penalty and the £450,000 property cap, which has remained unchanged since 2017.
Source: Treasury Select Committee report on Lifetime ISAs (2025).
Martin Lewis and his MoneySavingExpert team have also campaigned for changes to the rules, particularly for first-time buyers in areas where house prices have moved beyond the £450,000 cap.
HMRC research published in 2025 found that 22% of non-LISA holders saw the withdrawal charge as a reason not to open one, while 31% of existing holders said they would save more if the penalty was reduced.
Source: HMRC Lifetime ISA customer research (2025).
For now, the practical takeaway is simple:
We'll update this article when the consultation is published. For broader market updates, you can keep an eye on our mortgage news section.
You can also check the Government’s official Lifetime ISA guidance for the latest eligibility and withdrawal rules.
Whether keeping or withdrawing your Lifetime ISA makes sense usually comes down to your deposit size and the mortgage you need. A bigger deposit lowers your loan-to-value ratio (LTV), which measures how much you borrow compared with the property's value and may improve the range of mortgage products available to you. Mortgage rates and eligibility will depend on your individual circumstances and lender criteria.
If your target property is still under the LISA cap and your timeline works, the bonus and tax-free growth can be hard to walk away from. But if local house prices have moved beyond the £450,000 limit, you may need to weigh the cost of the withdrawal charge against the value you've already built up in the account.
The LISA is only one part of the picture, though. Lender criteria, affordability checks, income, credit history, and rate availability can matter just as much as deposit size when you're working out what may actually be possible.
If you want help understanding how your deposit fits into the mortgage options available to you, you can speak to a Habito mortgage adviser or see all first-time buyer mortgage options.
Habito is authorised and regulated by the Financial Conduct Authority (FRN 714187).
If you're also comparing older and newer schemes, it may help to compare with the Help to Buy ISA too.
This article is for general information only and isn't personal financial advice.
A few of the questions people most often ask about Lifetime ISA withdrawals.
Yes, you can take money out of your Lifetime ISA at any time. But unless the withdrawal qualifies under the rules, HMRC will apply the 25% withdrawal charge (based on the full pot, not just your contributions), which means you may get back less than you paid in.
If you die, your Lifetime ISA becomes part of your estate. The 25% withdrawal charge does not apply in that situation, although normal estate and inheritance tax rules may still matter.
No, transferring from a Lifetime ISA to a Cash ISA is treated as a withdrawal, so the 25% charge usually applies. Only LISA-to-LISA transfers between providers avoid the penalty.
For a first-home purchase, your LISA provider will usually release the funds to your conveyancer within 30 days of receiving the correct forms. For other withdrawals, timing depends on the provider, but it is often a few working days.
Not yet. The Government announced a consultation in early 2026 on a replacement product, but the current 25% charge still applies.
You can withdraw money from your Lifetime ISA to help buy a property worth more than £450,000. However, because the purchase exceeds the Lifetime ISA property price limit, the withdrawal will usually be treated as a non-qualifying withdrawal and the 25% withdrawal charge will apply. This is one of the main criticisms of the current Lifetime ISA rules, particularly in areas where property prices are higher.
Thinking about your next mortgage step?
Whether using a Lifetime ISA toward your first home is the right move for you depends on your savings goals, timeline, and the property you're aiming to buy. Whether you've maxed out your LISA, are weighing up a withdrawal, or are ready to start house-hunting, a Habito adviser can help you understand what your savings may mean for your borrowing options.
You can also use our affordability calculator to see an indicative borrowing range based on your inputs, or get a Mortgage in Principle if you're close to making an offer.
Talk to a Habito mortgage adviser about what may be realistic for your situation.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Information is correct as at May 2026 and may change. Always check the latest terms and conditions before taking out a product.
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