45,000 UK Savers Penalised Multiple Times Under LISA Withdrawal Rules

Approximately 45,000 Lifetime ISA holders incurred unauthorised withdrawal penalties on multiple occasions during the 2024–25 tax year, according to freedom of information data obtained by smart money app Plum. The figure accounts for roughly one-third of the 129,200 individuals penalised in that period.

The disclosure carries added weight because HMRC had informed the Treasury Select Committee it could not deliver the same statistic within the timeframe requested during the committee's recent inquiry into the product. Rajan Lakhani, personal finance expert at Plum, noted the disparity: "It is noteworthy that this exact data was requested by a parliamentary committee, but MPs were told it could not be produced in time. And yet a Freedom of Information request has surfaced it in a few short weeks."

Those charged more than once during the tax year faced an average cumulative penalty of £760. Nearly 4,000 savers incurred combined fines exceeding £2,000, while the top 25 multiple-penalty cases averaged more than £11,000 per person.

The breakdown shows:

• 33,530 savers lost between zero and £999 cumulatively
• 3,970 savers absorbed fines above £2,000
• 60 individuals each paid more than £8,000 in penalties

The withdrawal charge stands at 25% of the total bonus-inclusive withdrawal amount, which can leave savers with less than their original deposit. A saver contributing £1,000 receives a 25% government bonus, bringing their pot to £1,250. A full cash withdrawal then triggers a penalty of £312.50, leaving them with £937.50.

That structural feature — where the penalty reclaims not only the bonus but also a portion of the saver's own capital — has drawn sustained criticism from consumer groups and MPs. The product's property price cap adds a further constraint: at £450,000, a ceiling frozen for nine years, the LISA is effectively inaccessible for purchases in London and the south-east, where average transaction values have long exceeded that threshold.

Plum is calling on the government to raise the cap to approximately £600,000 in line with price growth and to increase the annual subscription limit. The company is also lobbying for the withdrawal penalty to be reduced to 20%, which would eliminate the scenario where savers recover less than they deposited.

The government has signalled its intention to replace the Lifetime ISA with a new First-Time Buyer ISA, expected to remove the retirement-savings purpose, eliminate cash withdrawal penalties and delay the government bonus until the point of purchase. The trade-off is that savers will not accrue interest or investment growth on the bonus during the accumulation phase.

Annual savings limits and the property price cap for the new product have not yet been announced and may feature in an upcoming Budget. The Treasury Committee's report, published in June, highlighted the information gap on repeat penalties; that the gap was subsequently closed by a private FOI rather than by HMRC proactively is likely to sharpen parliamentary scrutiny of the new product's design.

The episode illustrates a recurring friction point in UK retail savings policy: wrappers designed to incentivise long-term behaviour often penalise households that face short-term liquidity pressures — precisely the first-time buyers the LISA was designed to assist.

Plum is authorised and regulated by the FCA (FRN: 739214) and is approved by HMRC as an ISA manager. The company was founded in 2016 and is headquartered in London.