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In the recent Budget announcement, the Chancellor confirmed that the Lifetime ISA (LISA) withdrawal penalty charge would revert back to 25% from 6 April.
Due to the pandemic, the penalty was temporarily reduced to 20% in order to support people who needed to access their funds during difficult times. This meant that the penalty charge only impacted the government bonus, as opposed to the original investment.
The original Lifetime ISA terms continue to offer fantastic benefits, but there are a number of factors to consider when deciding whether to open one.
We’ve answered some of the most important questions you might have about the LISA and whether it’s the right account for you.
It depends. There is no doubt that the government bonus makes the Lifetime ISA an appealing option, but there are a range of factors to think about when deciding if this is the best account for you. We’ve summarised some of the key points to consider:
If you hold a Lifetime ISA, the 25% penalty charge means that your capital will be at risk if you make a withdrawal for an unauthorised reason.
While 20% of the penalty fee accounts for the government bonus, the remaining difference will come out of your capital.
For example, if you put £4,000 in a LISA, you will have received the full £1,000 maximum government bonus, making your total balance £5,000. If you need to make an ‘unauthorised withdrawal’, you will be charged a total of £1,250 – which means you will lose £250 from your capital and the £1,000 bonus.
This works out at a penalty charge of 6.25% on your original investment.
Paragon will claim the bonus on your behalf each time you make a deposit. This will be added onto your balance 4-9 weeks after your deposit.
The bonus will be claimed up to the total yearly allowance each time you make a deposit, until you reach the age of 50.
Yes – there are some conditions and it’s important to consider the type of property you might want to buy before opening a Lifetime ISA.
There is a number of criteria you need to meet:
We can’t send your LISA funds directly to you for a house purchase, they have to be sent to a Conveyancer or Solicitor. To start the process, you will need to complete an Investor Declaration form and pass it to your conveyancer. They will then need to fill in a Conveyancer Declaration and send both to us to release your funds.
Yes. If you are a first time buyer then you can use funds from your LISA towards a deposit on a property, even if you’re buying a house with someone who isn’t a first time buyer.
After your 60th birthday you will have access to all the money in your Lifetime ISA.
Any money you choose to keep in your LISA after 60 will keep earning tax-free interest. If you don’t want to retire until after 60, this won’t affect your Lifetime ISA. It simply means you’ll have access to the money from aged 60. To withdraw your savings once you have turned 60, simply login to your account and follow the onscreen instructions. The funds will then be paid into your nominated bank account.
It’s easy to transfer your existing LISA from another provider. Just head over to our Cash Lifetime ISA page and choose to transfer a LISA.
You’ll firstly complete an online application form which will start opening your Paragon LISA. You’ll then need to complete and send us a LISA transfer form. We will contact your provider and arrange the transfer and then write to you to confirm when it’s complete.
You also don’t need to worry about your bonus when transferring your LISA to us. Any government bonus received by your original provider after the transfer will be sent to Paragon. We will claim your government bonus and apply it to your LISA with us going forward.
Head officeParagon51 Homer RoadSolihullWest MidlandsB91 3QJ
Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551