HM Revenue and Customs (HMRC) has confirmed that 154,100 individuals incurred withdrawal penalties totaling nearly £119 million last year from Lifetime Individual Savings Accounts (Lifetime ISAs or LISAs). In contrast, 99,750 savers withdrew £1.5 billion from their LISAs to purchase a home during the 2025-26 tax year, according to official data.
The withdrawals subject to penalties were deemed “unauthorised” because they did not meet the scheme’s criteria, such as buying a property valued above the £450,000 threshold, which has remained unchanged since the scheme’s introduction in 2017. This penalty effectively amounts to a 6.25% charge on the withdrawn amount-for instance, a £625 charge on every £10,000 saved.
Martin Lewis, the financial expert and broadcaster, is campaigning to eliminate these fines, highlighting their impact on young people already struggling with inflation and housing costs. He commented: “This is unfair, especially for many young people who’ve already been priced out by inflation. Lifetime ISAs work well for many, but there’s a growing hole which needs addressing.”
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Sarah Coles, head of personal finance at AJ Bell, described the penalties as “horrible” and noted the government’s consideration of reforms. She told the Independent: “The fact that £119 million was lost to exit charges shows how many people either don’t fully understand the rules or are forced to raid their savings in an emergency.”
Coles also pointed out the uncertainty surrounding potential policy changes, which may cause some savers to delay using their LISAs, putting home-buying plans on hold.
Labour has confirmed that existing Lifetime ISA accounts will remain open, with bonuses paid as usual. Meanwhile, a Treasury spokesperson acknowledged the scheme’s limitations, stating: “We recognise that the Lifetime ISA is not working for everyone, particularly when people’s circumstances change. That is why we have consulted on a new and improved product, specifically designed to support first-time buyers and without penalty for withdrawals.”