Withdrawal charges for Lifetime individual savings accounts rose 53 per cent last year after an additional 27,000 people redeemed their savings.
The charges, which occur when a saver draws money from a Life or transfers their savings to another type of Isa before age 60, rose to £47.2mn in the 2022-23 tax year, according to figures from HMRC.
The total value of these redemptions jumped from £123mn to £189mn in the most recent tax year, with the number of people making withdrawals hitting just under 75,000.
Hargreaves Lansdown has repeated its call for the 25 per cent unauthorised withdrawal charge to be lowered to 20 per cent.
A Lifetime Isa has a contribution limit of £4,000 per year, and if held until age 60 the consumer receives a 25 per cent bonus from the government.
The consumer is also hampered if they purchase a home with a Lisa that is worth more than £450,000, a figure which has not changed since 2017.
The average UK house price has risen from £215,243 in January 2017 to £294,329 in December 2022, according to the Office for National Statistics.
This penalty was reduced to 20 per cent during the pandemic, however this has now been restored at the original rate of 25 per cent.
Over 56,000 people used their Lisa to purchase a home last year.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said as the cost of living crisis bites the figures make for “sobering reading”.
“Lifetime ISAs have enormous potential to help people save for their retirement, with groups such as the self-employed likely to find them particularly attractive.
“The bonus acts in a similar way to basic rate tax relief on a pension and the potential to access those savings during difficult times will be attractive.
“As it currently stands, you can only open a LISA if you are under the age of 40. If the government could remove this limit, then we could see a lot more people making use of them.”
HMRC has been contacted for comment.
The data from HMRC also showed that nearly one million fewer adults subscribed to Isas in the 20222-23 tax year.
Some 11.8mn people subscribed to the tax break accounts last year, down from 12.2mn a year before.
Stocks and shares Isas proved popular, adding 345,000 more subscribers, however cash Isas saw 920,000 fewer subscribers.
Jason Hollands, managing director of Bestinvest, said it is important to remember that these statistics reflect a “very different environment” for savers and investors than the one we are in now.
“For much of the 2021/22 tax year, equity markets were rocketing on the back of post-lockdown euphoria and a wall of liquidity from central bank money printing,” he said.
“Given the increasingly oppressive tax environment faced by savers and investors, it is vital to make use of the tax-free allowances available, to protect your wealth. In this respect, ISAs should be high on people’s to-do list.”
sally.hickey@ft.com
What's your view? Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
