The findings come as the Government prepares to replace the Lifetime ISA with a new savings product aimed at first-time buyers. The existing scheme, introduced in 2017, offers a Government bonus to help people save for their first home or retirement, but its withdrawal rules have faced criticism for being too restrictive.
HMRC Figures Reveal the Scale of Repeated ISA Withdrawal Penalties
The figures, obtained by money app Plum through a Freedom of Information request to HMRC, show that approximately 45,000 people incurred multiple unauthorised withdrawal charges in 2024–25, representing around a third of the 129,200 savers penalised that year, according to the Daily Express.
Those charged more than once lost an average of £760 in cumulative penalties. Around 33,530 savers faced combined charges of less than £1,000, while 7,470 incurred penalties between £1,000 and £1,999.
The figures also reveal considerably larger losses among a smaller group of account holders. Around 60 people paid at least £8,000 in penalties, while another 60 were charged between £7,000 and £7,999. For the 25 individuals facing the highest cumulative penalties, HMRC reported an average charge of £11,000, rounded to the nearest £100.
Separate HMRC figures for 2025–26 show that 154,100 people made unauthorised withdrawals, generating £118,985,000 in charges. The average amount withdrawn for a house purchase during that tax year was £15,407.
Lifetime ISAs allow individuals to save or invest up to £4,000 annually, with the Government providing a 25% bonus worth up to £1,000 each year. The bonus is available on contributions made until the age of 50.
However, withdrawing funds before turning 60 for reasons other than an eligible first-home purchase, unless another exemption applies, normally triggers a 25% charge on the amount withdrawn. For example, someone depositing £1,000 receives a £250 Government bonus, bringing the balance to £1,250. Withdrawing that entire amount would incur a £312.50 charge, leaving £937.50, or £62.50 less than the original contribution.
Government Plans Replacement Scheme Amid Criticism of Existing Rules
According to Wales Online, a Government consultation on the design and implementation of a new first-time buyer ISA closed in August 2026. The proposed product would replace the Lifetime ISA for new applicants, while existing account holders would be allowed to continue saving.
The replacement would focus exclusively on home purchases, removing the retirement savings element. The current scheme also restricts qualifying property purchases to homes costing no more than £450,000.
Plum personal finance expert Rajan Lakhani criticised the financial impact of repeated penalties, saying: “These are significant sums of money for first-time buyers who already face considerable obstacles to getting a foot on the housing ladder.”
According to GB News, PensionBee vice-president Maike Currie argued that the existing scheme should be reformed rather than replaced. She called for changes to the withdrawal penalty and property price cap while retaining the scheme’s existing benefits. The Government has yet to announce the new product’s annual savings limits or property price thresholds.
