Martin Lewis has issued a warning over 'unfair' fines issued to 154,100 people who made unauthorised withdrawals from their Lifetime ISA (LISA) between April 2025 and March 2026, according to the latest HMRC data.
The Money Saving Expert is campaigning to remove fines for those who have been 'priced out by inflation'.
Penalty explained
Lewis explained: "If you try to use LISA savings to buy a home above the £450,000 threshold (which hasn't moved since LISAs launched in 2017), you're effectively fined 6.25% of your money (so £625 per £10,000 saved) to withdraw it."
He added: "This is unfair, especially for many young people who've already been priced out by inflation."
Last year, nearly £119 million was lost by LISA holders due to these rules, costing each saver an average of £3,088.
Record first-time buyer usage
The HMRC data also shows a record 99,570 people used their LISA to purchase their first home. Despite this, it is the fourth year in a row that unauthorised withdrawals have overtaken withdrawals for purchasing a property.
The government-backed scheme is intended to help first-time buyers by topping up deposits by 25 per cent, with a maximum of £1,000 a year. However, funds can only be used to buy a first home under £450,000 – a figure unchanged for nine years. Since 2017, the average house price has risen by nearly a quarter, reaching £553,000 in London, but the cap has not increased.
Calls for change
If a LISA holder withdraws funds for anything other than a first home, they forfeit 25 per cent of the funds back to the government. This takes 25 per cent from the total balance, rather than just the top-ups, equating to a 6.25 per cent penalty charge. Any interest or investment gains are also not protected from the withdrawal cost.
Lewis continues to call for these rules to change, saying: "Lifetime ISAs work well for many, but there's a growing hole which needs addressing."
Sarah Coles, head of personal finance at AJ Bell, described the penalties as 'horrible'. She told The Independent: "Don't end up making unauthorised withdrawals that land you with a punitive charge. During the year, £119m was lost to exit charges. It shows how many people either don't fully understand the rules or are forced to raid their savings in an emergency."
The government detailed plans in June to launch a First-Time Buyer ISA which would replace LISAs, removing the 6.25 per cent penalty. Campaigners are calling for the property value threshold to be raised for the product.
