Self-employed workers will be hit by a 25% penalty when withdrawing funds from the new contractor ISA for ‘unauthorised’ reasons before the age of 60, according to an independent worker body.

This new Lifetime ISA (LISA) has been introduced to help contractors save for major financial events, such as purchasing a property or retirement.

LISAs are only accessible to people aged 18–39 years old. You can save up to £4,000pa tax-free in the new contractor ISA until you turn 50. The government then provides a bonus of 25% on all money paid in up to this amount.

However, contractors looking to access funds for reasons other than purchasing a property before age 60 will be hit with a 25% penalty on each withdrawal.

IPSE criticises contractor ISA withdrawal penalty

The Association of Independent Professionals and the Self-Employed (IPSE) highlighted that younger contractors are the most likely to be affected. They may require funds from their LISA in order to cover for fluctuating income.

IPSE argues that those that the LISA is meant to assist are at risk, leading them to be unfairly penalised by this aspect of the agreement.

Citing the pressures of irregular contractor income, IPSE’s Lorence Nye commented: “[We are] calling for removing or lowering the financial penalty to accommodate for self-employed variable income.”

It’s unlikely that this will cause a change. So the penalty will still come into force for the vast majority of withdrawals starting 5 April 2018.

Find out more about the new contractor ISA by calling on a little help from the experts at 3 Wise Bears.