Around 45,000 Lifetime ISA savers were hit with unauthorised withdrawal penalties more than once during the 2024–25 tax year, according to Freedom of Information data obtained by smart money app Plum. The figure represents roughly a third of the 129,200 individuals penalised in that period, and carries particular sting because HMRC had told the Treasury Select Committee it could not produce the same statistic within the requested timeframe during the committee’s recent inquiry into the product.
The average cumulative penalty for those charged more than once was £760. Some 3,970 savers incurred combined fines exceeding £2,000, and in the most severe cases, among the top 25 multiple-penalty cases, average combined charges per person exceeded £11,000. Plum’s release also provides a full breakdown: the largest cohort, 33,530 savers, lost between zero and £999 cumulatively, while 60 individuals each absorbed more than £8,000 in a single tax year.
“It is noteworthy that this exact data was requested by a parliamentary committee, but MPs were told it could not be produced in time,” said Rajan Lakhani, personal finance expert at Plum. “And yet a Freedom of Information request has surfaced it in a few short weeks.”
How the penalty mechanics work
The withdrawal charge sits at 25% of the total bonus-inclusive withdrawal amount, which means savers can end up with less than their original deposit. A saver contributing £1,000 receives a 25% government bonus to bring their pot to £1,250, but a full cash withdrawal then incurs a penalty of £312.50, leaving them with £937.50. That structural quirk, where the penalty reclaims not only the bonus but also a slice of the saver’s own capital, has drawn sustained criticism from consumer groups and MPs alike.
The product’s property price cap adds a further constraint. At £450,000, a ceiling that has been 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. It is also lobbying for the withdrawal penalty to be reduced to 20%, which would eliminate the scenario where savers recover less than they deposited.
Regulatory and policy read-across
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 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. The Treasury Committee’s report, published in June, highlighted the information gap on repeat penalties in paragraph 31; 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.
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.
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