Martin Lewis advises on opening a Lifetime ISA
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As the cost of living crisis continues to squeeze Britons everyday finances, many are turning to their LISAs to access much needed cash to help them with risings costs. However, by doing this, savers will be hit with the charge of 25 percent of what they withdraw if they use the money for something other than the specific purposes of the LISA. According to HMRC figures, a record number of 77,500 people were hit with the early withdrawal charge in 2021-22 totalling £33million.
This is an increase of nearly 30,000 people since 2020-21 and nearly a 70,000 increase since 2018-19.
However, the £33million is £1million less than 2020-21 as many dipped into their savings during the COVID-19 pandemic.
The Government announced the reduced rate in June 2020 and said savers could claim back the extra five percent charge they received if they withdrew money from their LISA from March 2020.
In April 2022, 8,900 LISA savers made unauthorised withdrawals worth over £14million.
This peak mirrored the time when inflation hit the forty year high of 9 percent.
This figure is the highest figure for the year with the average unauthorised withdrawal being £1,611.
Over the 2021-22 tax year the average unauthorised withdrawal sat at £1,706.
The Treasury has been urged to cut the LISA early withdrawal charge as the cost of living crisis will force savers to dip into their pot earlier than planned.
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Introduced in April 2017, the Lifetime Individual Savings Account aimed to aid first-time buyers in saving for a house and help provide a more “easy-access” way of saving for retirement.
Britons can put up to £4,000 a year into their LISA with the Government then paying 25 percent of what has been put in.
This could mean that a saver could receive a free cash bonus of £1,000 as well as earn tax free interest on the savings.
Anyone between the ages of 18 and 39 can open a LISA and can keep adding to the pot until they are 50 years old.
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