HMRC is fining Lifetime ISA savers for withdrawal rule breaks by charging 25% on any money taken out early for a reason the rules do not allow. Because the charge applies to your whole pot, you lose the government bonus and 6.25% of your savings too.
Freedom of Information data shows that 45,000 savers were penalised more than once in a single tax year.
- Around 45,000 Lifetime ISA (LISA) holders were charged more than once in 2024–25.
- Those repeat cases lost £760 each on average that year.
- Some 3,970 people paid combined fines above £2,000; the worst-hit 25 averaged over £11,000.
- They were about a third of the 129,200 people charged that year.
- In 2025–26, a record 154,100 savers paid £118,985,000 in charges.
- The £450,000 cap has been frozen since 2017, and the replacement ISA is still only a proposal.
What the New FOI Data Reveals
The numbers came to light through a Freedom of Information request by the money app Plum. The Treasury Committee had asked HMRC for the same figure during its Lifetime ISA inquiry. Its report noted the tax authority could not produce it in time. One FOI request surfaced in weeks.
Rajan Lakhani, personal finance expert at Plum, said, “These are significant sums of money for first-time buyers who already face considerable obstacles to getting a foot on the housing ladder.”
Cumulative Charges For Savers Fined More Than Once in 2024–25
| 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 |
More than 11,000 lost over £1,000 each — money, as City AM noted, leaving people already struggling to buy.
Nearly £119m Lost in One Year
Separate HMRC statistics published in September paint a bigger picture. In 2025–26, charges totalled £118,985,000, taken from a record 154,100 people. Yahoo Finance reported that it was the fourth consecutive year in which unauthorised withdrawals outnumbered those made for the product’s intended purpose.
That year 99,570 people did buy a first home with a LISA, withdrawing over £1.5bn, an average of £15,407 each.
Sarah Coles, head of personal finance at AJ Bell, called the penalties “horrible”: “Don’t end up making unauthorised withdrawals that could 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.”
How the 25% Charge Actually Works
Guidance on GOV.UK is clear that the charge applies to the full amount withdrawn, including the bonus and growth. Your provider deducts it before the money reaches you. Here is the maths on one year’s maximum contribution:
| Amount | |
| You pay in | £4,000 |
| Government bonus (25%) | £1,000 |
| Pot value | £5,000 |
| Withdrawal charge (25%) | −£1,250 |
| You receive | £3,750 |
You lose the whole bonus plus £250 of your own money. Put in £1,000, and the pot becomes £1,250. The charge is £312.50, so you get £937.50 back, £62.50 worse off than when you started.
Partial withdrawals work the same way, as MoneyHelper explains. To receive £120, you must request £160. Need £3,000 in hand? Withdraw £4,000.
When You Can Withdraw Without a Penalty
There are only a few get-outs, and providers cannot bend them:
- Buying your first UK home costing £450,000 or less, with a residential mortgage, at least 12 months after your first payment in.
- Reaching age 60.
- Terminal illness with less than 12 months to live.
- Death, when the funds pass into your estate.
- Transferring to another Lifetime ISA provider.
For a house purchase, your conveyancer must request the funds and receive them directly. Savings app Tembo warns that taking the cash out yourself triggers the full charge even when you genuinely intend to buy. Providers usually release the money within 30 days, with completion expected within 90. If the sale collapses, the money goes back, and your LISA status is preserved.
Moving funds into a Cash ISA or Stocks and Shares ISA is considered an unauthorised transaction. So does a cash purchase, a buy-to-let, or a family mortgage.
The £450,000 Cap Catching London Buyers
The limit has not moved since the LISA launched in April 2017. Since then, the average UK house price has climbed roughly 24% to £273,000, while London sits near £553,000. Uprated in line with growth, the cap would be around £550,000 today.
Buy a home for even £455,000, and the withdrawal fails the test. Martin Lewis and his MoneySavingExpert team have long argued the rules need urgent attention.
HMRC research found 22% of non-holders saw the charge as a reason not to open an account, while 31% of holders would save more if it were cut. Plum wants the cap lifted to roughly £600,000; some providers prefer regional limits.
What Happens Next
HM Treasury has consulted on a First Time Buyer ISA to replace the LISA, with the consultation closing in August 2026. Under the proposals, it would cover home purchases only, scrap the withdrawal charge, drop the upper age limit, and pay the bonus at the point of purchase. The trade-off is that the bonus no longer earns interest or growth while you save.
No launch date is confirmed, and reports suggest it may not arrive until 2029. Existing holders can keep paying indefinitely but cannot transfer old savings across.
Brian Byrnes of Moneybox argued, “The Lifetime ISA…needs targeted improvements, including to the withdrawal penalty and house-price cap, but these changes can be made now for the people already relying on it.”
Maike Currie, vice president of personal finance at PensionBee, was blunter: “These figures expose a fundamental flaw in the Lifetime ISA. The government gives you a 25% bonus for saving, but if life gets in the way, the withdrawal charge can claw back the bonus and take a slice of your savings too.”
How To Avoid Being Fined
Keep a separate emergency fund so a broken boiler never forces a raid on your LISA. Fund the account 12 months before you hope to buy, and check local prices against the cap. If the cap catches you, leaving the pot untouched until 60 avoids the charge entirely.
You can pay in £4,000 a year inside the £20,000 ISA allowance, frozen until April 2031.
FAQs
Q. Why is HMRC fining Lifetime ISA savers?
A. A 25% government withdrawal charge applies whenever money leaves a LISA for a reason the rules do not permit. It is automatic, not a judgement on your circumstances.
Q. How much do I lose on an unauthorised withdrawal?
A. You lose the entire government bonus, about 6.25% of your contributions, and a quarter of any interest or investment growth.
Q. Can I use my LISA for a house over £450,000?
A. You can withdraw the money, but the purchase will not qualify, so the 25% charge applies in full. This is the most criticised part of the scheme.
Q. Does redundancy or an emergency count as a valid reason?
A. No. Job loss, debt, moving abroad or a break-up all attract the charge. Only a first home, age 60, terminal illness and death are exempt.
Q. Will the withdrawal penalty be scrapped?
A. Not yet. The planned First Time Buyer ISA removes it, but that product is unconfirmed and the 25% charge still applies today.
Q. Should I still open a Lifetime ISA?
A. If you are buying under the cap and at least a year away, the bonus is hard to beat. If your plans are uncertain, the penalty risk may outweigh it.
Sources & References:
- Plum – These are significant sums of money for first-time buyers who already face considerable obstacles to getting a foothold on the housing ladder.
- GOV.UK – The charge applies to the full amount withdrawn, including the bonus and growth.
- Yahoo – It was the fourth consecutive year that unauthorised withdrawals outnumbered those made for the product’s intended purpose.
- City AM – More than 11,000 lost over £1,000 each, leaving people already struggling to buy.
