{"id":425142,"date":"2026-02-14T09:35:08","date_gmt":"2026-02-14T09:35:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/425142\/"},"modified":"2026-02-14T09:35:08","modified_gmt":"2026-02-14T09:35:08","slug":"lifetime-isa-counterproductive-as-savers-penalised-13500-to-take-out-their-own-money","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/425142\/","title":{"rendered":"Lifetime ISA ‘counterproductive’ as savers penalised \u00a313,500 to take out their own money"},"content":{"rendered":"

First-time buyers saving through Lifetime ISAs are now more likely to face financial penalties than successfully purchase a property, according to the latest HMRC data. <\/p>\n

During the 2024-2025 tax year, some 129,200 savers incurred charges for withdrawing funds outside permitted circumstances, while just 87,000 managed to use their savings to buy a home.<\/p>\n

The Treasury’s penalty receipts totalled \u00a3102million during this period, marking a substantial rise from the \u00a375million collected the year before.<\/p>\n

For the 25 heftiest individual charges, the mean penalty climbed to \u00a313,500, compared with \u00a310,600 in 2023-2024. Across all penalised savers, the average charge amounted to roughly \u00a3790. Some 1.6 million active accounts remain open nationwide.<\/p>\n

The growing disparity between those penalised and those achieving homeownership has sparked intense criticism of how the scheme functions in today’s market.<\/p>\n

James Bulman, Director and Financial Planner at Smith & Pinching, told GB News that the scheme has become fundamentally flawed for many aspiring homeowners.<\/p>\n

“With regards to LISAs, they’re a complicated one in the sense of most financial advisors won’t look into them unless they have to,” he explained.<\/p>\n

Mr Bulman cited a recent Oxford client whose target property exceeded the \u00a3450,000 threshold, rendering their savings counterproductive.<\/p>\n

\"LifetimeThe ISA cut has been met with frustration from savers | GETTY<\/p>\n

“The property they’re looking at is over \u00a3450,000. So they’ve been paying in on this premise of buying this property, and it’s counterproductive because they’d have to buy a lower value property,” he said.<\/p>\n

Crucially, exit charges surpass the original tax relief, with penalties applied to the entire withdrawal rather than just the government bonus.<\/p>\n

The \u00a3450,000 property price ceiling has stood unchanged whilst housing costs have surged dramatically.<\/p>\n

Had this cap been adjusted to reflect market movements, it would currently sit at \u00a3575,550, according to AJ Bell calculations from February 2025.<\/p>\n

\"Cash<\/p>\n

Over one in ten local authority areas now have typical property values above the LISA limit<\/p>\n

| GETTY<\/p>\n

Halifax recently announced that average UK house prices crossed the \u00a3300,000 barrier for the first time, hitting \u00a3300,077 in January.<\/p>\n

Research from Skipton Building Society indicates that over one in ten local authority areas now have typical property values above the LISA limit.<\/p>\n

This effectively bars first-time buyers in these locations from using their savings without penalty.<\/p>\n

Savers face an effective 6.25 per cent penalty on their hard-earned funds if their desired home breaches the threshold, making alternative savings options increasingly attractive.<\/p>\n

A consultation on a replacement savings product is anticipated to commence this year, bringing substantial alterations to the scheme’s structure.<\/p>\n

\"People<\/p>\n

Under proposed reforms, the 25 per cent government bonus would be paid at the point of property purchase completion rather than being added monthly as occurs presently<\/p>\n

| GETTY<\/p>\n

Under proposed reforms, the 25 per cent government bonus would be paid at the point of property purchase completion rather than being added monthly as occurs presently.<\/p>\n

This change would likely abolish the contentious exit penalties entirely, as there would be no bonus requiring recovery from early withdrawers.<\/p>\n

The retirement savings function is expected to be stripped from any successor product altogether.<\/p>\n

However, these modifications present a compromise for savers. Receiving the bonus solely upon purchase rather than throughout the saving period would eliminate opportunities to earn compounding interest and investment returns on the government contribution.<\/p>\n

This could ultimately produce smaller total savings compared with the existing monthly bonus arrangement.<\/p>\n","protected":false},"excerpt":{"rendered":"First-time buyers saving through Lifetime ISAs are now more likely to face financial penalties than successfully purchase a…\n","protected":false},"author":2,"featured_media":425143,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,1085,2222,4174,4175,474,56,54,55],"class_list":{"0":"post-425142","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-isa","11":"tag-money","12":"tag-personal-finance","13":"tag-personalfinance","14":"tag-tax","15":"tag-uk","16":"tag-united-kingdom","17":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/425142","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=425142"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/425142\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/425143"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=425142"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=425142"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=425142"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}