Lifetime ISA: How unfair charges and bonuses can be appealed to HMRC | Personal Finance

Help to Buy ISAs offered less opportunities for bonus levels, had a separate price limit for homes outside of London and had no separate investment options. These are all issues that are not present in Lifetime ISAs. However, if the account holder, for whatever reason, wished to withdraw money from the Help to Buy ISA they faced no penalty or charge for doing so. Most withdrawals from Lifetime ISAs incur a 25 percent charge.

Related articles

Help to Buy: Homeowner halves housing outgoings after saving £25,000 ISA: Savings expert explains a common mistake savers make

READ MORE

Help to Buy ISA vs Lifetime ISA: What’s the difference?

This 25 percent charge is based off what is withdrawn, with the charge levied on the remaining funds within the account.

So, for example, if an individual decides to withdraw £5,000 from their Lifetime ISA the withdrawn charge will be £1,250 (25 percent of £5,000).

The Lifetime ISA manager will retain the £1,250 and pay it forward to HMRC.

However, the government has recently released updated guidance which details how the withdrawal charge process works.

READ MORE: Help to Buy ISA warning: Homeowners could miss out on 25 percent bonus for this reason

Charges

Unexpected charges could derail house purchase plans (Image: GETTY)

Government help

Government bonuses are one of the key reasons people use lifetime ISAs (Image: GETTY)

There are no charges on withdrawals for what is deemed a “life event”.

Two of the defined life events are for the actual purpose of the Lifetime ISA, retirement and home purchasing. There will be no fees for withdrawals after the age of 60, or for a first time residential purchase.

The third defined event is withdrawals after the death or terminal illness of the account holder.

There are however other instances where withdrawals will not result in a charge.

DON’T MISS:
Mortgage free: How borrowers could wipe years off mortgage and save thousands of pounds [ADVICE]
Mortgage at 23: How one woman saved for £27k deposit in 7 years without Bank of Mum & Dad [STORY]
Help to Buy ISA: Can you transfer savings into a Lifetime ISA? Key date to note is looming [INSIGHT]

Related articles

Junior ISA: The upcoming date you may want to be aware of Can ISA allowance be backdated? What savers need to know

As the government details, the following withdrawals will not be subject to a charge:

They are payments being removed from an invalid accountManagement fees charged by, and paid directly to, an ISA manager in line with its terms and conditionsWhen a LISA manager is declared in default by either the Financial Conduct Authority (FCA) or the Financial Services Compensation Scheme (FSCS)An act, omission or circumstance not caused by the account holderrecoupment and repayment of an incorrect government bonus to HMRC

Property Investment

Investing in property is considered to be a great investment (Image: HOWSY)

READ MORE

Saving money: Could you boost savings by £2,000 in 2020 with this ISA?

While these instances are mainly for the concern of ISA managers, ISA holders may want to be aware of them as they have the option of appealing to the HMRC, should they feel that they have been unfairly charged.

This could be an unexpected issue for many. There is a lot of money in Lifetime ISA penalties, a freedom of information request from Royal London, the financial services giant, revealed that £9 million in charges have been made since the beginning of 2018.

Trending

House sale

Owning a home is a goal for many people (Image: GETTY)

If a bonus claim is denied, the ISA manager must inform the holder within 14 days. The ISA holder then has 90 days to appeal the decision to HMRC. When appealing a bonus decision, the holder can make a written request to the Lifetime ISA manager for a statement that provides details of the gross amount withdrawn, the amount of charge deducted and the net amount actually paid.

The Lifetime ISA manager must provide this information within 30 days, however, they do not need to support the holders application. HMRC will notify the account holder directly of its appeal decision. If the appeal is successful, HMRC will inform the ISA manager to claim the government bonus that is now owed.