First-time buyers have been stung with penalties averaging more than £13,500 after breaching strict rules on accessing Lifetime ISA savings, new figures have shown. Anyone withdrawing money from a Lifetime ISA (LISA) for reasons other than purchasing their first home under the £450,000 cap, reaching age 60 or being diagnosed as terminally ill faces a 25% charge on the full amount taken out.

HMRC data shared with The Telegraph showed that the 25 largest penalty charges issued so far in the 2024–25 tax year averaged £13,500 – a sharp rise on £10,600 last year. Across the last tax year, savers paid a total of £102 million in withdrawal penalties, up from £75 million in 2023–24. The increase reflects both an increase in the number of people being charged and the growing size of LISA pots. On average, affected savers lost around £790. The penalty does not just remove the Government’s 25% bonus – it also wipes out 6.25% of the saver’s own contributions, leaving many worse off than if they had never opened the account.

Of the over 1.6 million active LISA accounts, a total of 129,200 savers faced charges, while only 87,000 utilised their savings to acquire a property.

Some buyers were penalised after attempting to use funds to purchase properties above the £450,000 limit, forcing them to pay the full charge.

Lifetime ISAs, introduced by George Osborne in 2017, enable individuals aged 18 to 39 to save up to £4,000 per year with a 25% Government bonus worth up to £1,000 annually, to contribute towards the purchase of their first home. However, the scheme has faced growing criticism from MPs and financial experts who say it is confusing, restrictive and failing to deliver on its aim of helping people build a deposit or save for retirement.

Between April 2018 and April 2024, the Treasury collected approximately £213 million in penalties resulting from 286,000 unauthorised withdrawals. Savers have previously told HMRC that unexpected life events forced them to access their savings early, and that the penalty added “further punishment” during already difficult circumstances.

A spokesperson for the Treasury said: “The Lifetime Isa remains focused on supporting young people to achieve the aspiration of home ownership, or to build up savings for later life, and in the last year helped around 57,000 people get onto the property ladder.

“We are also committed to building 1.5 million more homes so that people can turn the dream of owning a home into a reality.”