HMRC rakes in £56MILLION from hard-working Brits who try to access their own rainy day cash

SAVERS have lost more than £56million of their own cash to a much-hated withdrawal charge. The Lifetime ISA (LISA) is aimed at helping first-time buyers and future retirees grow their savings, but thousands of savers end up stung by its withdrawal penalty. The tax-free savings account gives you a 25% bonus on deposits of up to £4,000 each year. But if you take out your money for anything other than buying your first home or retirement, you’ll trigger the withdrawal fee. Sign up for the First Time Buyer Guide newsletter Thank you! This means you’ll lose your 25% Government bonus and you’ll also face an effective 6.25% penalty on the cash you deposited too. Many LISA holders have also found themselves trapped because you can’t use it to buy a home worth more than £450,000. This threshold has been frozen since 2017 and it has left aspiring homeowners in the most expensive regions such as the South East and London unable to use their LISAs. The withdrawal penalty can run into the hundreds or thousands of pounds. Someone who contributed £4,000 to their LISA would see their balance rise to £5,000 once the bonus is added. However if they chose to withdraw the money outside of the strict LISA rules, they would be left with £3,750. Most read in Money That means they would’ve lost £250 of their own savings alongside the bonus. Analysis by The Telegraph has found HMRC has raked in more than £315million from LISA withdrawal charges since the account was introduced. A huge £56million of this was taken from savers’ own deposits. AJ Bell’s Tom Selby told the paper the penalty was “the biggest flaw in the product design”. “Frustratingly, it could be easily fixed by reducing the overall withdrawal charge from 25% to 20%,” he said. “The fact this penalty is netting the Treasury a tidy sum every year is undoubtedly a factor in their belligerence on this issue.” A record 129,200 individuals made unauthorised withdrawals in the last tax year, up from 99,700 the year before. Earlier this year, the Government announced plans to scrap the Lifetime ISA in favour of a new savings product. The First Time Buyer ISA is set to be introduced in 2028 and it will also give savers a Government bonus to boost their cash pot. However, the bonus will only be paid out when you buy your first home – rather than yearly, like with the LISA. The First Time Buyer ISA will not carry a withdrawal penalty, but it appears the £450,000 house price cap is not yet being scrapped. Comment now