By James Rodger
Copyright birminghammail
HMRC is set to penalise Lifetime ISA savers – with the punishment for withdrawals soaring to over £100m. Savers face hefty charges outside first-home or retirement withdrawals under current Labour Party and HMRC rules. Savers using Lifetime ISAs faced withdrawal penalties totalling approximately £102million during the 2024/25 tax year, figures from HMRC have revealed. This represents a significant rise from £75.3million in penalties during the previous year. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, stated: “The 25 per cent government bonus for Lisa contributions can really boost people’s savings and help that dream of owning your first home or having a decent retirement feel that bit more real.” READ MORE Major update over calls for new 11pm to 9.30am bus travel rule in England Under the normal LISA rules, you can take some or all of your cash out of a LISA before age 60 even if you’re not buying a property – but you’re charged 25% of the amount withdrawn. She added: “However, the way the early exit penalty works is that it not only takes away the benefit of the government bonus but also a chunk of your own savings. “For someone who has saved hard to try and meet a financial goal it’s a tough lesson to take when they need to tap into that income for unforeseen circumstances and then get hit hard with a penalty.” Claire Exley, head of financial advice and guidance at JP Morgan-owned wealth manager Nutmeg, commented: “Property purchases using the Lifetime Isa increased significantly during the 2024/25 tax year, likely driven by first-time buyers keen to beat changes to stamp duty rules at the start of April.” Exley noted: “Whether it is rising house prices which have put properties beyond the Lisa house price cap or a change in life circumstances that means people need the money in their Lisa, more savers are handing over their savings to pay the exit penalty.” Jason Hollands, managing director of Bestinvest, warned: “Isas should not be taken for granted given the increasingly painful tax burden in the UK.” I’s best to try to only use the LISA if you’re sure the cash is for one of the two defined purposes: buying a first-home costing £450,000 or less, or retirement.
