Unauthorised LISA withdrawal - good or bad idea?
I opened a Lifetime ISA when it was first introduced in 2017/18 and contributed the maximum £4k each year for the first 5 tax years. I then spent some time abroad so didn't contribute further.
Capital = £20k (£25k with government top up).
It has been invested the whole time and has since grown to £52k where it is at today. In 2024 I received a £150k inheritence which I decided to put down as a deposit on an apartment in Sydney, Australia where I was living at the time and still own now that I am back in the UK.
Some context on my FIRE progress.
32M living in London with partner. No kids and no immediate plans to have any.
Base salary £134k (TC c. £200k depending on bonus but its not too volatile). Investing £1.6k per month into S&S ISA to max it out over the year then another £1k ish into Crypto/GIA.
Employer pension - £1,700 p.m. (Employer 10%, me 5% - I've already surpassed the max matching of ER 10% and EE 2%).
S&S ISA £103k
Pensions £80k
Crypto £110k
Total NW including Aus home equity c. £500k
As I understand, I cannot put the LISA toward a home in the UK now as I have already bought one so my two options are either, a) leave until retirement age, or, b) withdraw early as an unauthorised withdrawal and take the 25% penalty.
A) Leave until retirement - Even if I made no further contributions, another 30ish years of compounding alone along with my pensions will leave pretty healthy pots.
B) Unauthorised withdrawal - Considering I contributed £20k and it's now worth £52k, even if I do take the hit and the 25% penalty it will leave me with £39k which is still a nearly 100% return on my cash capital, and I could then re-invest and try to build up the ISA/GIA FIRE bridge to when the pensions ultimatley kick in. This is of course if I made the withdrawal today, I could leave it for a few more years and re-assess if worth taking the penalty then.
Is my understanding of the LISA rules correct?
Does anyone have any experience with an unauthorised LISA withdrawal and how painful is it paying the penalty?
Can you do partial withdrawals or is all or nothing?
I don't want to work an office job forever so am investing quite aggresively whilst I can now and will hopefully be able to step back/work part time from 40ish if my pot allows me and spend time with potential future kids!
Any thoughts and guidance appreciated, thanks in advance!