Tens of thousands of savers in the government’s Lifetime Isa have been subjected to multiple penalties for taking out their cash, data shows.
Some 45,000 Lifetime Isa savers were penalised with unauthorised withdrawal charges more than once in 2024-25, according to a freedom of information request by money app Plum.
The average amount they lost was £760, but some were charged more than £11,000.
Anyone under the age of 40 can open a Lisa and they can pay in until they hit 50. The Government will chip in £1 for every £4 saved, giving a £1,000 bonus on the maximum £4,000 a year they can pay in.
But the money saved can only be used for a first home, which must cost less than £450,000, or for retirement.
Those who need to get their hands on their cash for any other reason are subject to a 25 per cent penalty charge on the amount withdrawn.
The penalty applies to the total amount of funds being withdrawn, not the total amount of funds that have been added. This means someone can lose not only the entire bonus they have received, but some of their own cash as well.
Penalty: Lifetime Isa savers are fined when they take money out of their accounts, if they ren’t using it to buy a home or for retirement
For example, a saver putting in £1,000 would receive a bonus of 25 per cent, making their pot worth £1,250.
But if they withdrew that £1,250, they would face a penalty of 25 per cent of the total amount, losing £312.50.
This would leave them with £937.50, so in other words they would be £62.50 worse off than when they started.
The data revealed the average saver penalised more than once in 2024-25 lost £760.
More than 11,000 savers lost more than £1,000. Some 3,970 savers incurred combined fines in excess of £2,000, while in the top 25 most severe cases, average combined penalties per person were in excess of £11,000.
| Withdrawal charge (band) | Number of individuals |
|---|---|
| £0 – £999 | 33,530 |
| £1,000 – £1,999 | 7,470 |
| £2,000 – £2,999 | 2,350 |
| £3,000 – £3,999 | 820 |
| £4,000 – £4,999 | 370 |
| £5,000 – £5,999 | 200 |
| £6,000 – £6,999 | 110 |
| £7,000 – £7,999 | 60 |
| £8,000+ | 60 |
| Source: Plum. Freedom of Information (FOI) HMRC data obtained by Plum |
The 45,000 people who suffered multiple penalties represented around a third of the 129,200 people penalised in that tax year.
People withdrawing once may be abandoning their Lifetime Isa – for example, because the home they want to buy will now cost more than £450,000.
But multiple withdrawals suggest that these people are dipping into their Lifetime Isa savings for emergencies, or that they aren’t fully aware of how the accounts work.
New first-time buyer account may scrap penalties
In June, the Treasury launched a consultation on a new first-time buyer Isa designed to help aspiring homeowners build a deposit.
The aim is that this will replace the Lifetime Isa in 2028, although those who already have one will be able to keep them open and still collect the bonus.
The new product is expected to remove the option of using funds for retirement and add the bonus only when someone is ready to buy a home, rather than paying it out each month. It will also eliminate cash withdrawal penalties.
The downside is that people won’t be able to accrue interest on their government bonus, as it arrives at the point of purchase rather than beforehand.
Rajan Lakhani, personal finance expert at Plum says its data will ‘anger many’ and focus minds on ensuring the new first-time buyer Isa is fit for purpose.
He said: ‘More than 45,000 people have been stung with multiple penalties in the space of a single year when they’ve been doing the right thing and using a Lifetime Isa to help their homeownership dreams become a reality.
‘These are significant sums of money for first-time buyers who already face considerable obstacles to getting a foot on the housing ladder.’
There have also been calls to increase the current property price cap to reflect price inflation in the time since Lifetime Isas were launched in 2017.
Lakhani believes it should be increased to around £600,000.
He added: ‘First-time buyers in London and the South East face the most acute affordability challenges in the country. The effect of the existing Lifetime Isa – frozen at £450,000 for nine years now – has been to shut many out of the housing market altogether.
‘The launch of the first-time buyer Isa presents the government with a perfect opportunity to show it’s serious about democratising access to the housing ladder by raising the existing cap to around £600,000 in line with price growth.’