HMRC figures show savers who broke Liftime ISA (LISA) rules faced withdrawal penalties totalling an estimated £102million in 2024-25 up from £75.3m the year before. The total amount of unauthorised withdrawals acts as a warning to savers who hold LISA accounts of the loss they face if they take money out before turning 60 or if they don’t put the cash towards their first home.

The figures show 129,000 people were hit with a penalty after making an unauthorised withdrawal last year, up from 99,700. Under the rules, you can withdraw money from your Lifetime ISA if you are buying your first home, aged 60 or over or are terminally ill with less than a year to live. If you take cash out for any other reason, then you have to pay a withdrawal charge of 25%.

You can open a LISA if you are aged between 18 and 39. You can deposit up to £4,000 per year until you turn 50.

The Government adds a 25% bonus to your savings up to a maximum of £1,000 per year, but when you turn 50, you can no longer pay into a LISA and aren’t entitled to the bonus. Your money can still gain interest though.

According to figures shared by Hargreaves Lansdown in June, there were 1,338,000 open LISA accounts by the end of the tax year 2023–24.

About 6% of the population who have ever been eligible for a LISA held one as of January last year. The Lifetime ISA has helped some 228,000 young people onto the housing ladder.

But a whopping £213million was paid in withdrawal charges from 286,000 people in the six tax years to April 2024.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said in June: “In 2023/24 more people paid withdrawal penalties than the number who used their LISA to buy a home. In that year, 7% of all LISA savers withdrew money for reasons other than buying their first home or retirement and paid a penalty of 25%. Some have made a number of withdrawals over the years and paid a series of penalties.

“The flexibility people have to withdraw money from a LISA in an emergency is a key feature of the product. It’s what persuades some reluctant people to put money aside for the long term. However, the penalty means giving up a chunk of their own money, which is clearly unfair – penalising people for trying to do the right thing.”

Hargreaves Lansdown wants to see the penalty cut to 20%, which Ms Coles said would in effect remove the Government bonus.

Parliament’s Treasury Select Committee has also urged the Government to use the Budget as an opportunity to rethink LISAs.

The Government has said it is keeping its LISA policy under review and considers all representations.