The Association of Independent Professionals and the Self-Employed (IPSE) has warned the freelance community of a new 25 per cent withdrawal charge from Lifetime ISAs from April 5th 2018, a charge it claims to be “freelancer-unfriendly”.
The IPSE believes this new fee is a particular blow to self-employed individuals who have unpredictable incomes and understandably have more need to gain access to the £4,000 tax-free cash that a Lifetime ISA can hold.
There are just three circumstances in which withdrawals from a Lifetime ISA will not incur the 25 per cent withdrawal charge. This includes the scenario where an individual becomes terminally ill.
The IPSE is also highly critical of the restrictive eligibility rules for the Lifetime ISA, available only to individuals aged between 18 and 39.
The IPSE said: “Self-employed incomes are variable and people should be aware of the large 25 per cent penalty for removing finances.
“The self-employed have volatile, irregular incomes so a penalty-free withdrawal would alleviate the significant penalty if they do need to access their money.”
The main purpose of the Lifetime ISA is to help the self-employed save up to buy a property or set aside money for retirement. A Lifetime ISA can save up to £4,000 a year tax-free, until a saver is 50.
Upon the withdrawal of the cash – after the saver’s 60th birthday – the government also adds a further 25% of the total amount paid in, not including interest or investment growth.
Lorence Nye, economic adviser, IPSE, said: “[The Lifetime ISA] is certainly a step in the right direction and the young self-employed, in particular, would be wise to take advantage of it, [but] it’s not for everybody.
“[That’s why we are] calling for removing or lowering the financial penalty to accommodate for self-employed variable income.”