New HMRC figures reveal that 154,100 people were penalised for unauthorised withdrawals from their Lifetime ISA in 2025-26, while only 99,750 used the account to purchase their first home. The data shows more than £1.5bn was withdrawn for property purchases, with the average withdrawal value standing at £15,407.
Product failure highlighted by withdrawal penalty numbers
Rachael Griffin, head of tax and trusts at Quilter, said the statistics demonstrate that the Lifetime ISA is not fit for purpose in its current form. "It's a double-edged sword," she said. "You've got the balance of the numbers supporting it – the number of people using the lifetime ISA to purchase their first house – versus those who have been penalised because they've had to take their savings early."
Griffin added: "The fact over 50,000 more people paid a penalty to access their money than successfully used the product to buy a home seems like a failure of the product." The gap between those penalised and those who bought a home stands at 54,350 people.
How the Lifetime ISA works
The Lifetime ISA is a savings account designed to let individuals save for a property or retirement without paying tax on the interest earned. It offers a government bonus equal to 25% of everything saved, added each year, allowing savers to earn interest on the bonus. The funds can be accessed without penalty either when buying a property or upon reaching the age of 60.
However, the Office for Budget Responsibility warned at the time of launch that the ISA could lead to higher house prices. "We think this is more likely than not to lead to higher demand for the relatively fixed supply of housing in the UK, and so to higher prices," the OBR said. "We have added 0.3% to the level of house prices by the end of the forecast, but the effect could easily be larger (if more house deposit saving is channelled through lifetime Isas than we have assumed) or smaller – perhaps if parents supporting their first-time buyer children's deposit saving reduce that support in light of the amount that will be provided by the government."
Call for a simpler savings product
Griffin argued that the Lifetime ISA does not clearly serve its intended purpose. "Lifetime ISA doesn't exactly scream first time buyer opportunity," she said. "The figures support that there is a place for some form of ISA or savings which supports individuals toward their first home."
She stressed the importance of simplicity: "The key is keeping it simple and ensuring it does what it says on the tin." The comments come as the government faces growing scrutiny over the effectiveness of savings products aimed at helping first-time buyers onto the property ladder.
