More than 130,000 savers have been hit with penalties for breaching Lifetime ISA (LISA) withdrawal rules, according to new data from HMRC. The charges come when funds are accessed for reasons other than buying a first home under £450,000, reaching age 60, or terminal illness.
The 25 largest penalty charges in the 2024-25 tax year averaged £13,500, up from £10,600 the previous year. Over the last tax year, savers stung with a total of £102 million in penalties, compared to £75 million in 2023-24. The average loss per affected saver was around £790.
The 25% penalty not only removes the government's 25% bonus but also wipes out 6.25% of the saver's own contributions, leaving many worse off than if they had never opened the account. Out of more than 1.6 million active LISA accounts, only 87,000 were used to buy a property in the latest period.
Lifetime ISAs, launched in 2017, allow those aged 18-39 to save up to £4,000 per year with a 25% government bonus. However, critics argue the scheme is confusing and restrictive. Since April 2018, the Treasury has collected roughly £213 million in penalties from 286,000 unauthorised withdrawals.
A Treasury spokesperson said: “The Lifetime Isa remains focused on supporting young people to achieve the aspiration of home ownership, or to build up savings for later life, and in the last year helped around 57,000 people get onto the property ladder. We are also committed to building 1.5 million more homes so that people can turn the dream of owning a home into a reality.”
