Every month, thousands of people are taking money out of their savings, often to pay essential bills – and being fined for doing so by HM Revenue and Customs.


These people have put money into a Lifetime Isa (Lisa) to save up for a deposit for their first home. With a Lisa the Treasury tops up what you put in by 25 per cent. However, a Lisa can normally only be used for a deposit on a home by a first-time buyer with a mortgage.
Any other withdrawal is unauthorised and incurs a penalty, leaving savers with less than they put in.

It works like this. You put, say, £1,000 into a Lisa. The Treasury tops it up with £250, making a total of £1,250. But if you ask to withdraw the money for the wrong reason then, before you’re paid, the Treasury will not just take back the £250 subsidy. It’ll take 25 per cent of the whole lot, which is £312.50. That will leave just £937.50 – in effect, you’ve been fined £62.50.

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In 2022/23 a record 74,650 people withdrew nearly £189 million from Lisas for the wrong reason, and in the process incurred penalties of more than £47 million – of which nearly £9.5 million was extra money in excess of the withdrawal of the subsidy. Used for the right reason, a Lisa is a very good deal. Last year 56,100 people did use the money for a house deposit, gaining an average subsidy from the Treasury of £2,775 towards it. But for people who break the rules Lisas are very poor value, leaving them with less than they put in.

You must be aged 18 to 39 to open a Lisa and can then put in up to £4,000 a year until you reach age 50. The amount you put in counts as part of your normal £20,000 limit for money paid intoan Isa. Apart from a house deposit, two other sorts of withdrawal are allowed without penalty: when you reach age 60 or are diagnosed with a terminal illness.

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For more information, search gov.uk for “lifetime Isa”. But only begin a Lisa if you are sure you will be able to use it for the right reasons.


Questions? Email paul.lewis@radiotimes.com