Some savers charged at least £11,000 to withdraw cash from Lifetime Isas

The government is being urged to scrap Lifetime Isa penalties for first-time buyers in the autumn Budget as it emerged some savers are being charged at least £11,000 to withdraw their cash.

Lifetime Isas (Lisas) help people to save for their first home – if the property costs £450,000 or less – or their retirement.

Withdrawing cash for any other reason, unless someone is terminally ill, can trigger a penalty. Savers face a charge of 25% for making an unauthorised withdrawal.

Data obtained from HM Revenue & Customs (HMRC) and published by money app Plum showed that in the tax year 2022-23 the average of the top 25 penalties paid for unauthorised withdrawals was £11,000.

The average of the top 25 withdrawals made, rounded to the nearest thousand, was £44,000.

Data released to Plum by HMRC under Freedom of Information (FOI) rules showed that in 2022-23 15,977 savers had to hand back £1,000 or more in penalties.

Some 6,139 savers were hit with penalties of £2,000-plus, while 851 were hit with penalties of £5,000-plus.

In London the average house price is more than half a million pounds. / Credit: Myung Jung Kim/PA Archive

The 25% unauthorised withdrawal charge strips out not only the government bonus that comes with Lisas but also removes a chunk of savers’ cash.

While there are multiple reasons savers can be penalised, the £450,000 property purchase cap for first-time buyers has attracted criticism, with house prices having surged in recent years.

In some parts of southern England, average house prices are higher than the cap, including in London, where the average house price is more than half a million pounds.

Outside London, there are some local authority areas where average house prices are also approaching or over the cap, such as Cambridge, where the average property value is £487,493, and Windsor and Maidenhead at £572,410.

Figures recently released by HMRC showed the total value of Lisa withdrawal charges hit just over £75.2 million in 2023-24 – nearly 40% higher than the previous year when they totalled £54.3 million.

The total value of withdrawal charges in 2023-24 was £75,272,000, up from £54,328,000 in 2022-23.

Rajan Lakhani, a spokesman for Plum, which expects to launch a Lisa soon, said: “These findings show how the current ceiling is shutting people out of the housing market.

“There are currently dozens of local authorities across the country where the average house price is greater than the £450,000 cap, and that number is only set to rise in the future.

“The Chancellor has put home ownership at the centre of the Labour Party’s programme for government.

“That’s why it makes sense to index-link the Lifetime Isa ceiling from the time of its launch and bring in a new limit closer to £600,000.

“Young people trying to get a foot on the housing ladder have enough challenges already without having to worry about potentially losing a chunk of their hard-earned savings.”

A Treasury spokesperson said: “Decisions on tax are made in the round at the Budget.

“Across the vast majority of the country the average price for a first-time home remains below the £450,000 Lifetime Isa cap, and we are committed to building 1.5 million more homes so that people can turn the dream of owning a home into a reality.”