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Savers lost nearly £119m to 'horrible' Lifetime ISA penalties last year as HMRC data reveals record withdrawals

From the Newshound archive · first published 19 September 2026.

First-time buyers face an average penalty of £3,088 when withdrawing from a Lifetime ISA, with unauthorised withdrawals now outpacing those made to buy a first home for the fourth consecutive year.
First-time buyers face an average penalty of £3,088 when withdrawing from a Lifetime ISA, with unauthorised withdrawals now outpacing those made to buy a first home for the fourth consecutive year.

Record numbers of savers made unauthorised withdrawals from their Lifetime ISAs in the year to March 2026 — 154,100 in total — incurring an average penalty of £3,088 and surrendering a combined £119m. The property purchase cap that determines eligibility has remained frozen at £450,000 since 2017, while the average London home now costs £553,000. Experts caution that the real penalty bites harder than it appears: rather than simply clawing back the government bonus, it strips away 6.25 per cent of the saver's own money. AJ Bell's head of personal finance urged savers to take time before making any decisions and described the charge as "horrible."

Had the £450,000 cap tracked house price growth since 2017, it would stand at £550,000 today.

Unpaid carers face a separate retirement penalty that can reach £30,000, with each year away from work stripping around £5,000 from pension savings, according to research from PensionBee.

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