Tens of thousands of Lifetime ISA savers have been hit with withdrawal charges more than once in a single year, with some losing thousands of pounds for accessing their money.
Around 45,000 people incurred multiple unauthorised withdrawal charges during the 2024/25 tax year, according to HM Revenue and Customs (HMRC) figures obtained by money app Plum through a Freedom of Information request.
The average saver who was charged more than once lost around £760 over the course of the year, however, some faced significantly bigger penalties. Around 60 people incurred total charges of at least £8,000, while another 60 were charged between £7,000 and £7,999.
Highest penalties reach £11,000
HMRC also revealed that among the 25 people with the highest cumulative penalties after being charged more than once, the average was £11,000.
The figures highlight the potential cost of taking money out of a Lifetime ISA for a reason not covered by the withdrawal rules.
Maike Currie, vice president of personal finance at PensionBee, said: “These figures expose a fundamental flaw in the Lifetime ISA. The Government gives you a 25 per cent bonus for saving, but if life gets in the way, the withdrawal charge can claw back the bonus and take a slice of your own savings too.”
How Lifetime ISAs work
Lifetime ISAs were launched in 2017 to help people save towards either buying their first home or retirement.
Savers receive a 25 per cent Government bonus on their contributions, worth up to £1,000 each year.
However, a 25 per cent withdrawal charge can normally apply when someone takes money out before the age of 60 for a purpose other than buying their first home.
Because the charge is applied to the amount withdrawn after the Government bonus has been added, it does not simply remove the bonus.
For example, someone paying £4,000 into a Lifetime ISA would receive a £1,000 Government bonus, giving them £5,000.
If they subsequently withdrew the full £5,000 and the 25 per cent charge applied, £1,250 would be deducted. They would receive £3,750 back - £250 less than the £4,000 they originally contributed.
The latest HMRC figures show the most common level of cumulative charges among people penalised more than once in 2024/25 was below £1,000, affecting around 33,530 savers.
When can Lifetime ISA money be withdrawn?
Lifetime ISA savings can be accessed without the withdrawal charge when they are being used to buy an eligible first home or once the saver reaches the age of 60.
The first-home rules include a £450,000 maximum property price, a limit which has previously faced criticism for failing to keep pace with house prices.
Separate HMRC figures released in September showed that £118.985 million in Lifetime ISA withdrawal charges was recorded during the 2025/26 tax year.
Some 154,100 people made unauthorised withdrawals during that year.
Meanwhile, the average amount withdrawn from a Lifetime ISA towards a house purchase was £15,407 in 2025/26.
Lifetime ISA set to be replaced
The figures come as the UK Government considers the design of a new first-time buyer ISA.
A consultation on the proposed account closed in August. Once the new product becomes available, it is expected to be offered instead of the Lifetime ISA.
People can continue to open Lifetime ISAs until the replacement becomes available, while existing account holders will be able to continue saving into their accounts afterwards.
The change follows criticism of the Lifetime ISA's dual purpose of helping people save both for their first home and later life.
However, Ms Currie argued that the existing account should be changed rather than replaced.
She said a record 87,250 Lifetime ISA holders used their savings to buy their first home during 2024/25, up 54 per cent in a year.
Ms Currie added: “This isn’t a product that has failed, but it does have flaws that need fixing.”
She called for changes to both the withdrawal penalty and the £450,000 property limit, while retaining the existing UK Government bonus and retirement element.
