Martin Lewis has warned savers of ‘unfair’ rules as hundreds of thousands lose money (Image: ITV file image)
Martin Lewis has issued a HMRC warning over ‘unfair’ fines that have been issued to 154,100 people.
Latest data from HMRC shows that a record number of 154,100 Brits made unauthorised withdrawals from their Lifestime ISA (LISA) between April 2025 and March 2026, and will have been charged.
The Money Saving Expert is campaigning to get rid of fines for those who have been ‘priced out by inflation’.
He explains: “If you try to use LISA savings to buy a home above the £450,000 threshold (which hasn’t moved since LISAs launched in 2017), you’re effectively fined 6.25% of your money (so £625 per £10,000 saved) to withdraw it.
“This is unfair, especially for many young people who’ve already been priced out by inflation.”
Last year, nearly £119 million was lost by Lifestime ISA holders due to these rules.
On average, this would have cost each saver £3,088.
The HMRC data also shows that a record 99,570 people used their LISA to purchase their first home.
Despite the record number, it is the fourth year in a row that unaurthorised withdrawals have overtaken withdrawals for purchasing a property.
The government-backed scheme is intended to help first-time buyers get on the property ladder by topping up deposits by 25 per cent, with a maximum of £1000 a year.
But, under the scheme, the funds can only be used to buy a first home under £450,000 – a figure that has remained unchanged for nine years.
Since 2017 the average house price has risen by nearly a quarter, reaching £553,000 in London.
However, the price cap has not increased.
A record number of people used the Lifetime ISA to purchase their first homes (Image: Getty)
If a LISA holder withdraws funds for anything other then a first home they must withdraw them and forfeit 25 per cent of the funds back to the government.
This takes 25 per cent from the total balance, rather than just the top ups, so equates to a 6.25 per cent penalty charge on top of the withdrawal.
Any interest or investment gains made on the LISA is also not protected from the withdrawal cost.
Martin Lewis continues to call for these rules to change.
He said: “Lifetime ISAs work well for many, but there’s a growing hole which needs addressing.”
Sarah Coles, head of personal finance at AJ Bell, added that the penalties are ‘horrible’.
She told the Independent: “Don’t end up making unauthorised withdrawals that land you with a punitive charge. During the year, £119m was lost to exit charges. It shows how many people either don’t fully understand the rules or are forced to raid their savings in an emergency.”
The government detailed plans in June to launch a First-Time Buyer ISA which would replace LISAs, removing the 6.25 per cent penalty.
Campaigners are calling for the property value threshold to be raised for the product.
