LISA Penalty Exceptions UK 2026/27 — The Only Three Ways to Withdraw Without the 25% Charge

The exceptions at a glance

Exception 1 — First home purchase

Property price cap: £450,000

The property must cost £450,000 or less. This applies UK-wide (London, all English regions, Scotland, Wales, Northern Ireland). The cap has not been raised since the LISA launched in 2017 despite substantial UK house-price growth.

You must be a first-time buyer

You must never previously have owned a residential property anywhere in the world. Inherited property or property held through a trust may disqualify you — check with your solicitor if unclear.

LISA must be open at least 12 months

The first LISA payment must have been at least 12 months before your withdrawal. Opening a LISA specifically to fund an imminent house purchase within 12 months doesn't work.

Purchase must be mortgage-funded

The property must be bought with a mortgage. Cash purchases don't qualify (rare but worth flagging).

Property must be for you to live in

You must intend to live in the property as your main residence. Buy-to-let purchases don't qualify.

How the money flows

Your solicitor requests the funds from your LISA provider. The LISA provider transfers the money directly to your solicitor, who then applies it to the purchase. You never touch the cash — this is what makes it a "qualifying withdrawal" and unlocks penalty-free release.

Full first-home rules in our Can I use a LISA for a house deposit? guide.

Exception 2 — Age 60

From your 60th birthday, the entire LISA balance can be withdrawn for any purpose without the 25% charge. There is no upper age limit and no requirement to take everything at once.

What this looks like in practice

• Take the whole balance as a single withdrawal on or after your 60th birthday.
• Take a series of smaller withdrawals over months or years.
• Leave the LISA invested (Stocks & Shares variant) and withdraw as needed — the tax-free growth continues.
• Use the money for any purpose — retirement income, gifts, downsizing help, holidays, anything.

How it compares to a pension

Both LISA (from 60) and pensions (from 55, rising to 57 in April 2028) allow tax-free withdrawals within specific rules. Pensions get bigger tax relief on the way in but are taxed on the way out (above 25% tax-free lump sum). LISA withdrawals are entirely tax-free from 60 — but with far smaller contribution limits.

Exception 3 — Terminal illness

If you're diagnosed with a terminal illness and have less than 12 months' life expectancy, you can withdraw the whole LISA balance without the 25% charge, regardless of your age.

What's required

• Medical evidence — usually a certificate or letter from your consultant or GP stating the diagnosis and life expectancy.
• Contact your LISA provider — they'll request the documentation and forward the claim to HMRC.
• Approval typically within a few weeks.

This is a distressing scenario to plan for, but the exception exists to prevent the LISA becoming trapped when you need the money most.

What is NOT an exception

People commonly ask if these scenarios avoid the charge. They don't:

• Losing your job — no exception
• Buying a car — no exception
• Emergency medical costs (unless terminal) — no exception
• Buying a home priced £450,001+ — no exception (penalty applies)
• Buying a home you won't live in (BTL, second home) — no exception
• Cash purchases without a mortgage — no exception
• Divorce settlement — no exception (though the money can be split, the 25% charge applies to withdrawals)
• Bankruptcy — LISA money isn't automatically ring-fenced; withdrawals may trigger the charge

What if I need the money and don't qualify?

Your options:

1. Withdraw with the 25% charge — you'll receive ~93.75% of your original contribution (see how much you lose).
2. Leave the LISA intact — you can stop contributing without penalty; the balance sits until you either buy a first home or reach 60.
3. Borrow instead if the need is short-term — a low-interest personal loan may cost less than the 6.25%+ effective penalty on a large LISA withdrawal.

Related pages

• LISA withdrawal penalty calculator
• How much do I lose withdrawing from a LISA?
• Lifetime ISA vs Help to Buy ISA
• Can I use a LISA for a house deposit?
• Best Lifetime ISAs UK
• FAQ: Can I use a LISA for any house?

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Frequently asked questions

What are the LISA penalty exceptions?

The 25% UK LISA withdrawal charge is waived in three scenarios only: (1) purchasing your first UK home priced £450,000 or under, with the LISA open at least 12 months; (2) reaching age 60; (3) terminal illness with medical evidence of under 12 months' life expectancy.

Does the £450k cap apply everywhere in the UK?

Yes. £450,000 applies across the entire UK — London, all English regions, Scotland, Wales, Northern Ireland. It has not been raised since 2017.

Do I need to have held the LISA for 12 months?

Yes for a first-home withdrawal. The LISA must have been open at least 12 months. No 12-month wait for the age-60 or terminal-illness routes.

Can I take the age-60 withdrawal any time from my 60th birthday?

Yes. From your 60th birthday, the entire balance is available for any purpose without penalty. No upper age limit, no requirement to withdraw all at once.

What counts as terminal illness for the LISA exception?

Medical evidence — usually from your consultant or GP — confirming life expectancy of under 12 months. Your LISA provider requires documentation; HMRC then approves the penalty-free withdrawal.