The Government will scrap the Lifetime Isa’s 25 per cent exit charge in its first year.
Speaking in a House of Commons debate, financial secretary to the Treasury Jane Ellison said that the Government had decided to waive the charge for 2017/18 because people could be charged the exit fees before they receive their first Government bonus on the product.
After the 2017/18 a 25 per cent exit charge, including on growth, will still apply however.
Ellison told MPs: “The 25 per cent Government charge on unauthorised withdrawals from the Lifetime Isa recoups the Government bonus and applies a small additional charge. This is fair as it reflects the long-term nature of the product and ensures that individuals save into it for the intended purposes, protecting Government funds and taxpayers’ money.
“However, in 2017/18 only, the bonus will not be paid monthly, as it will be from April 2018 on, but will be paid as an annual bonus at year-end. This could create a difficult case where people face a 25 per cent Government charge up to 12 months before they receive the bonus. We have listened to representations on this point, and so, to improve the product for consumers, I can confirm that there will be no Government charges in 2017/18.”
The Government has defeatedt an amendment to delay the legislation however and will not mandate Lifetime Isa savers take financial advice.
Ellison said: “We have been very clear that we do not expect Lifetime ISAs to drive opt-outs from pension saving. There is, therefore, no reason to delay. In fact, such a delay would disadvantage those who wish to open a Lifetime Isa and who have been preparing for a 2017 launch.”
The Lifetime Isa is due to launch next April. UK residents aged between 18 and 40 will be able to open a Lifetime ISA and pay in up to £4,000 each tax year with contributions qualifying for a 25 per cent Government bonus.