A flagship saving scheme to help people buy their first homes or save for retirement has seen nearly 130,000 hit with a giant 25% withdrawal charge.
Shadow Housing Secretary Sir James Cleverly accused Labour of “doing the opposite” of helping first-time buyers get on the housing ladder. He warned that the “abysmal failure” to deliver sufficient new homes had resulted in prices soaring, forcing people to “pull their money out”.
The Lifetime ISA scheme only allows withdrawals if people are buying a first home with a value not exceeding £450,000, aged 60 or over or terminally ill, with less than 12 months to live.
In 2024-25, 129,200 people made “unauthorised withdrawals” from their Lifetime ISA, leading to 25% withdrawal charges.
Sir James said: “Labour’s abysmal failure to deliver new homes means they are increasingly unaffordable for first-time buyers. Lifetime ISA limits have remained the same despite higher prices, leaving people with no option but to pull their money out and pay a huge penalty.
“The Government should be helping people achieve home ownership, but they are doing the opposite. Only the Conservatives will abolish stamp duty on primary residences, unfreezing the market, freeing up homes and giving first-time buyers a leg up onto the housing ladder.”
An HM Treasury spokesperson said: “We recognise that the Lifetime ISA is not working for everyone, particularly when people's circumstances change. That is why we intend to consult on a new and improved product, specifically designed to support first-time buyers and without penalty for withdrawals.”
The Government intends to introduce a replacement to the Lifetime ISA in April 2028.
Under the present system, people can put in up to £4,000 a year until they are 50, with the Government adding a 25% bonus to the savings, up to a maximum of £1,000 per year. Under the new design, the Government bonus will be paid at the point the individual makes a withdrawal for a house purchase – removing the need for a withdrawal charge and meaning savers can withdraw funds without a penalty.
