Home › LISA Withdrawal Penalty Explained
The Lifetime ISA early-withdrawal charge is 25% — and it's bigger than it looks. Most savers assume the penalty just claws back the government bonus. It does more than that. Here's exactly how the maths works, the misconceptions to avoid, and when the penalty doesn't apply.
Updated for the 2026/27 UK tax year.
The Lifetime ISA carries a 25% government withdrawal charge on any amount taken out for a reason other than: buying a first home up to £450,000, reaching age 60, or terminal illness. The 25% applies to the entire amount withdrawn, including your contributions, the government bonus, and any growth.
This is where most savers misunderstand the LISA. The 25% withdrawal charge is calculated on the total balance — not on the bonus alone. Because the 25% bonus and the 25% penalty are applied to different bases (contribution vs total balance), they don't net to zero.
The maths:
Run a few numbers in our LISA Penalty Calculator and the pattern holds at every contribution amount.
The most common framing of the LISA penalty in casual financial advice is "you lose the bonus". That's not quite right — and it understates the cost.
If you only lost the bonus, the penalty would be £250 in the example above (the bonus amount), and you'd walk away with £1,000 — the same as if you'd never opened a LISA. In reality you walk away with £937.50, which is £62.50 less than you contributed.
The reason the framing matters: it changes the decision logic. If the penalty really were "just the bonus", the LISA would be a free option — you could open one, get the bonus, and walk away unchanged if your plans changed. Because the real cost is 6.25% of your contribution, the LISA carries genuine commitment risk. That risk is fine when you're using the wrapper for its intended purpose. It's a real cost when you're not.
You contribute £1,200 in your first year. Government adds £300. Balance: £1,500. You change jobs, need cash, withdraw the lot.
You've contributed £12,000 over four years and received £3,000 in bonuses. Your Stocks LISA has grown to £17,000. You withdraw for a non-qualifying reason.
Notice how the 6.25% rate holds, but the additional sting on a Stocks LISA is that growth is also penalised — money that wasn't yours to begin with, and that you wouldn't have had without the LISA wrapper, is now lost to the penalty.
Your LISA balance is £20,000. You withdraw £5,000 for a non-qualifying reason and leave £15,000 in the wrapper.
Partial withdrawals are not penalty-free — every pound out attracts the charge — but they don't compromise the rest of your LISA wrapper.
After 12 months of LISA opening, withdrawals to fund a first-home purchase up to £450,000 are penalty-free. The funds must go via a UK conveyancing solicitor. See our LISA for house deposit guide for the detailed rules.
From your 60th birthday, the LISA effectively becomes a retirement wrapper. Full withdrawal is allowed, with no penalty and no tax (LISA growth is tax-free within and on withdrawal).
Diagnosed with less than 12 months to live, with a registered medical practitioner's confirmation, all withdrawals are penalty-free.
On death the LISA forms part of the estate and the 25% charge does not apply. The balance can be inherited by a surviving spouse or civil partner under additional ISA allowance rules.
Two rules of thumb:
The FCA and HMRC are aware of the 6.25% misunderstanding and providers are now required to explain the effective cost in plain English at sign-up and at withdrawal. Treat the 6.25% number as the one to remember — not 25%.
Use our LISA Penalty Calculator to model any planned withdrawal before you commit. If you're choosing a provider for a new LISA, see Best Lifetime ISAs UK. If you're trying to figure out whether your house purchase qualifies, read Can I use a LISA for a house deposit?.
Yes, in statutory terms. The HMRC withdrawal charge is 25% of any amount withdrawn for non-qualifying reasons. Where the 6.25% figure comes from is the net effect against your own contributions, after the bonus and penalty interact.
Because the 25% penalty is applied to the total balance, which includes your contribution and the bonus. £1,000 contribution + £250 bonus = £1,250. A 25% penalty on £1,250 is £312.50, not £250. You lose the bonus plus an additional £62.50 — which is 6.25% of your original £1,000 contribution.
The 25% withdrawal charge still applies to the amount you withdraw, regardless of whether the bonus has hit your account yet. There's no advantage to withdrawing before the bonus arrives.
Yes. The 25% charge applies to the full withdrawal value, including contributions, bonus, and any growth or interest. There is no carve-out for growth.
No. The LISA doesn't separate contributions from bonus once they're paid in. Any withdrawal is treated as a proportional withdrawal of all components.
Yes. Your LISA provider deducts the 25% charge from the withdrawal before paying you. You receive the net amount; HMRC receives the charge.
Only in narrow circumstances — for example, if the provider made an administrative error. Routine 'changed my mind' or 'needed the money' situations are not appealable.
Side-by-side comparison of Moneybox, Nutmeg, AJ Bell and Dodl.
Open comparison →Work out the cost of withdrawing early.
Open calculator →Which wraps wins for first-time buyers.
Read comparison →Rules, time limits, and the £450,000 cap.
Read guide →Why it's not just losing your bonus.
Read guide →Project growth across cash and stocks ISAs.
Open calculator →This is general information, not financial advice. Pennywise Finance is not authorised by the Financial Conduct Authority. For decisions involving significant sums or complex circumstances, consult an FCA-authorised adviser or the free MoneyHelper service.