Lifetime ISA withdrawal fine puts one in five off opening one – new Government data strengthens case for shake-up

LISAs are designed to help people aged 18 to 39 buy their first home or, much less popularly, to save for retirement. Savers get a 25% Government boost when they use the funds to buy a qualifying first home. They're a powerful product – still beneficial to many – which can give a huge boost to first-time buyers' savings.

But the scheme's £450,000 house price limit has remained frozen since it launched in 2017, despite house prices rising significantly since then. This has left some first-time buyers unable to find a suitable property under the limit, and savers buying a home that no longer qualifies are then effectively charged a 6.25% penalty on their own money when withdrawing – something we've been campaigning to fix since January 2023.

Key findings from HMRC's Lifetime ISA reports

Other key findings from HMRC's two reports published this week into understanding the use of LISAs by both holders and non-holders include:

• One in five (22% of) non-holders reported that the 25% withdrawal charge was a reason for NOT opening a LISA.

• Nearly one in three (31% of) LISA holders said they would save more if the withdrawal fine was axed. This would be achieved by reducing the penalty to 20% instead of 25%, which means savers would only lose the Government bonus and not any of their own savings.

• One in ten (12% of) LISA holders who had made any withdrawal had done so to purchase their first home outside of the LISA rules (equivalent to 3% of all LISA holders). The report didn't detail the reasons why, but did state that examples provided included the property price being higher than £450,000 and a change in circumstances meaning the LISA holder no longer required a mortgage to purchase the property.

• One in three (35% of) LISA holders said they would save more if the maximum property price cap changed from £450,000 to £600,000 per year. Average UK property prices rose by 34% between April 2017, when LISAs launched, and June 2025 – the latest available data from the UK House Price Index. Average first-time buyer property prices in Great Britain have increased by 33% over the same period, according to the same Index.

• LISA holders most commonly lived in London or the South East (26% and 17% respectively). In London, average first-time buyer property prices were already above £450,000 when the LISA launched and remain above this limit, according to the latest UK House Price Index.

First-time buyers shouldn't be fined to access their cash

HMRC's new research follows a Treasury Committee report – which Martin gave evidence to – published in June. This also urged for reform of the savings product.

Commenting at the time, Martin said: "Lifetime ISAs (LISAs) have worked well for many, but there is a growing hole that needs urgently addressing. No first-time buyer should be penalised for accessing their LISA savings to buy their first property – as that's what the state, and the marketing, encourages them to do."

Martin added: "If a LISA is used to buy a property above the threshold, there should be no fine, they should get back at least what they put in."

A response from HM Treasury to both the Treasury Committee and HMRC reports is due to be published by the Committee, though it's unclear when this will happen.