45,000 Lifetime ISA savers hit by withdrawal charge more than once, losing £760 on average

What's happened

Around 45,000 Lifetime ISA savers were hit with the 25% withdrawal charge more than once in the 2024-25 tax year, losing an average of about £760 each that year, according to HMRC figures released to the money app Plum under a freedom of information request.

The figures, reported on 7 and 8 October, show most of those savers (around 33,530) paid charges of up to £999 in total. But around 60 people paid £8,000 or more, and another 60 or so paid between £7,000 and £7,999. HMRC said the average of the 25 biggest cumulative penalties was £11,000, rounded to the nearest £100.

Separate HMRC figures released in September show £118,985,000 in Lifetime ISA withdrawal charges were recorded in 2025-26, when 154,100 people made unauthorised withdrawals.

"These figures expose a fundamental flaw in the Lifetime Isa," said Maike Currie, vice president of personal finance at PensionBee. "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 own savings too."

How the Lifetime ISA works

You can open a Lifetime ISA if you're 18 or over but under 40. You can pay in up to £4,000 a year until you're 50, and the government adds a 25% bonus, worth up to £1,000 a year. The £4,000 counts towards your overall £20,000 ISA allowance for 2026-27.

You can take the money out without a charge to buy your first home, once you're 60, or if you're terminally ill with less than 12 months to live. For anything else, you pay a 25% charge on the amount you withdraw.

Who's affected

• First-time buyers whose plans change. The home must cost £450,000 or less, you must buy with a mortgage through a conveyancer or solicitor, and you must buy at least 12 months after your first payment in. Miss any of these and the charge applies.
• Savers who need cash in an emergency. Dipping in for an unexpected bill before 60 triggers the charge.
• Anyone moving money out. Transferring to another type of ISA before 60, or to a Help to Buy ISA, also costs 25%.

What it means in pounds: a worked example

The charge is bigger than it looks because it's taken from the whole amount, including your own money. Say you save the maximum £4,000 a year for two years, ignoring interest:

• Your payments: £8,000
• Government bonus (25%): £2,000
• Pot: £10,000

If you then withdraw everything for a reason that doesn't qualify, the 25% charge is £2,500, leaving you with £7,500. That's £500 less than you paid in, so you lose the whole bonus plus 6.25% of your own savings.

Partial withdrawals work the same way. GOV.UK explains you have to take out more than you need to cover the charge. To get £3,000 in your hand, you'd need to withdraw £4,000, as the charge would be £1,000.

What to do now

1. Check the 12-month rule. If you're planning to buy soon, make sure at least a year will have passed since your first payment in before you complete.
2. Check the price cap. If homes you're looking at cost more than £450,000, a Lifetime ISA can't be used without the charge.
3. Keep an emergency fund elsewhere. Holding some savings in an easy-access account means you're less likely to need to raid your Lifetime ISA.
4. Tell your solicitor early. The ISA provider pays the money straight to your conveyancer, so build the timings into your purchase.
5. If you must withdraw, work out the real cost first. Use the 25% sum above, and speak to a financial adviser if you're unsure whether a Lifetime ISA still suits you.

Your questions answered

Can I still open a Lifetime ISA?

Yes. A government consultation on a new first-time buyer ISA closed in August 2026, and that product will be offered in place of the Lifetime ISA once it's available. Until then you can still open a Lifetime ISA, and existing savers will be able to keep paying in afterwards.

Can I use a Lifetime ISA and a Help to Buy ISA?

You can hold both, but you can only use the government bonus from one of them to buy your first home.

What happens when I turn 50?

You can't pay in or earn the bonus any more, but the account stays open and keeps earning interest or investment returns until you can withdraw at 60.

Ways to save

If you're using a Lifetime ISA towards a deposit, the mortgage matters just as much. A fee-free broker such as Cashback Remortgages can help first-time buyers compare deals. Once you've got the keys, check our codes for stores like Dunelm before kitting out your new home.

Sources: WalesOnline (HMRC data via Plum), Manchester Evening News, GOV.UK

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