More people were hit with a penalty for taking their money out early from a Lifetime ISA than used it for buying a first home, statistics from HMRC have revealed.
A record 99,750 people used their Lifetime ISA to purchase their first home in 2025-26, withdrawing more than £1.5bn towards property purchases. But 154,100 people made unauthorised withdrawals, paying £119m to access their own cash.
The ISA is popular as it offers savers a 25% bonus for any money put in up to £1,000 per year. This means savers can put up to £4,000, with the government topping this up to £5,000. The money can then be used to buy a property that costs less than £450,000 or can be saved to be withdrawn when over the age of 60.
However, any withdrawals not used for purchasing a property or after a person turns 60 are hit with a 25% penalty.
Rachael Griffin, tax and financial planning expert at Quilter, said the number of people using the ISA to buy a house shows there is strong demand for products that help aspiring homeowners build a deposit and take their first step onto the property ladder.
However, more than 50,000 more people paid a penalty to access their money than those that successfully used the product to buy a home, a statistic she said was a “failure of the product”.
“The average unauthorised withdrawal was just £3,088, suggesting many of these are not people emptying large accounts, but savers who started putting money aside for a home before finding their circumstances had changed and now need access to relatively modest amounts of their own savings,” she said.
Lifetime ISAs remain popular. The figures show around 1.1 million accounts were opened in the tax year 2024/25. In total, people put around £2.8bn into these accounts.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said they are a “handy way for people to get a first step on the property ladder” and can be a “valuable option for the self-employed”.
What is changing?
The government has announced plans to scrap the Lifetime ISA, which Griffin said had attempted to serve two very different purposes by helping people save for both a property purchase and retirement. This ultimately “created confusion and undermined confidence”, she said.
The government announced a consultation on a replacement in the November 2025 Budget, although as yet there are no confirmed details on what could replace the Lifetime ISA, other than it will be a product aimed at first time house buyers and will not include the retirement savings portion of the current product.
Morrissey said the decision will be a “bitter blow for those who valued the ability to balance saving for retirement with the opportunity to access their savings when needed, albeit subject to a tax charge”.
However, the government has said those who already have a Lifetime ISA will be able to keep paying in, so they’ll still get the 25% government bonus on contributions up to £4,000.
Sarah Coles, head of personal finance at AJ Bell, said: “Given that there is still no clarity on what that might look like, and the potential bonus on offer, some people may be sitting on their hands while they wait for more certainty, putting their property buying dreams on hold.
“However, there are no guarantees that the replacement product will be as generous as the LISA, so waiting may not pay off. The government has said that anyone who opens a Lifetime ISA will be able to continue using it as normal, so if it suits your needs, there’s no reason not to take the plunge.”
Griffin noted that with nearly 100,000 successful house purchases in a single year, ISAs that offer help in getting on the property ladder “can be highly effective” but noted that any future product “needs to combine those incentives with greater simplicity and flexibility”.