HMRC has issued penalties of up to £11,000 per person to people with savings in a move criticised by money expert Martin Lewis.
Currently, savers can put money away in a Lifetime ISA (LISA), to put towards the cost of buying a house.
For every £4,000 you put in each year, the government adds an extra £1,000, making a 25 percent top up.
But the catch is that you must spend the money on a property and it must cost £450,000 or less – which can be tricky in some parts of the UK where house prices have gone up and up.
If you take the money out for any other reason, you will get hit with a penalty.
Data obtained from HM Revenue & Customs (HMRC) and published by money app Plum showed that in the tax year 2022-23 the average of the top 25 penalties paid for unauthorised withdrawals was £11,000.
The average of the top 25 withdrawals made was £44,000. Figures were rounded to the nearest £1,000.
Data released to Plum by HMRC under Freedom of Information (FOI) rules showed that in 2022-23 15,977 savers had to hand back £1,000 or more in penalties.
Some 6,139 savers were hit with penalties of £2,000-plus, while 851 were hit with penalties of £5,000-plus.
The 25% unauthorised withdrawal charge strips out not only the government bonus that comes with Lisas but also removes a chunk of savers’ cash.
While there are multiple reasons savers can be penalised, the £450,000 property purchase cap for first-time buyers has attracted criticism, with house prices having surged in recent years.
Martin Lewis revealed he lobbied the previous chancellor Jeremy Hunt to change the rules and increase the £450,000 limit but ‘he didn’t do anything’ and savers ended up losing their own money to HMRC penalties.
He said: “I think it’s unfair and it’s not your fault house prices have gone up since 2017 but the LISA hasn’t and you were encouraged to do what you were encouraged to do. And he didn’t do anything.”
