Savers using Lifetime Isas have been hit hard with at least £11,000 charged to withdraw cash from their accounts, according to a recent report. Lifetime Isas (Lisas) are designed to assist individuals in saving for their first home if the property’s cost is £450,000 or less, or for their retirement. However, making an unauthorised withdrawal for any other purpose, except in cases of terminal illness, can trigger a penalty. This penalty stands at 25% of the amount withdrawn.
Data from HM Revenue & Customs (HMRC) revealed by money app Plum disclosed that in the tax year 2022-23, the average of the top 25 penalties paid for unauthorised withdrawals totalled £11,000, while the average of the top 25 withdrawals made was £44,000. The figures were approximated to the nearest £1,000. Additionally, the data showed that in 2022-23, 15,977 savers had to pay back £1,000 or more in penalties, with 6,139 savers facing penalties of £2,000 or higher, and 851 savers encountering penalties of £5,000 or more.
The 25% charge levied on unauthorised withdrawals not only deducts the government bonus associated with Lisas but also diminishes a portion of the savers’ funds. Critics have pointed out that the £450,000 property purchase limit for first-time buyers has come under fire, especially as house prices have surged in recent years. In regions of southern England, average house prices exceed the cap, such as in London where prices are above £500,000.
Data from Land Registry covering July 2024 revealed average house prices surpassing the cap in various council areas, including Cambridge, Chichester, Cotswold, and others. HMRC data showed that Lisa withdrawal charges totalled over £75.2 million in 2023-24, marking a substantial increase from the previous year’s £54.3 million. Plum spokesperson Rajan Lakhani emphasised the need to revisit Lisa rules and potentially raise the property price limit to £600,000 to align with current market conditions and enable young families to achieve homeownership without severe penalties.
Lakhani stressed that the upcoming Budget presents an opportunity for Chancellor Rachel Reeves to address the current Lisa regulations, providing relief to young couples aspiring to purchase their first home. Adjusting the property price limit could offer significant support to first-time buyers facing challenges in saving for a home amidst rising house prices and high rental costs. A Treasury spokesperson highlighted that decisions regarding tax matters are considered comprehensively during the Budget process, with a commitment to address housing affordability through the construction of additional homes.
In conclusion, the call to revise Lifetime Isa penalties and adjust the property price limit reflects the pressing need to facilitate access to homeownership for young families amid mounting challenges in the housing market.