ISA alert: 100,000 savers fined £75MILLION for withdrawing their own cash - calls to scrap scheme branded 'nonsense'

MPs on the Treasury Select Committee have questioned whether the Lifetime ISA represents good value for public money, arguing it may encourage people to use the wrong financial products.

However, industry experts say the scheme remains vital for first-time buyers and younger savers trying to get on the property ladder.

Finder’s Matt McKenna dismissed suggestions of scrapping it altogether, calling the idea "nonsense" and urging the Government to focus on "much bigger" issues.

Fresh analysis has shown that abolishing the Lifetime ISA altogether could cost taxpayers £3 billion by 2041. MPs have questioned the value of the scheme, but this new analysis suggests it raises more cash than it costs.

The analysis by CBI Economics and Moneybox found that for every £1 the government spends on the savings account, it gets £1.45 back in tax receipts.

Far from being a drain on public funds, the Lifetime ISA appears to boost both homeownership and Treasury income.

The data also shows that account holders typically buy their first home at 29, five years earlier than the national average, helping drive extra tax revenue through stamp duty, property fees, and housing market activity.

Launched in April 2017, the Lifetime ISA allows savers aged 18 to 40 to put away up to £4,000 each year until the age of 50. The government adds a 25 per cent bonus annually, although this is lost if the money is withdrawn for anything other than buying a first home worth up to £450,000 or after turning 60.

HMRC data shows that around 1.34 million Lifetime ISAs were active at the end of the 2023-24 tax year. In that year alone, 56,900 people used their accounts to buy their first home, bringing the total number of property purchases since the scheme began to 227,600.

Parliamentary scrutiny of the scheme intensified in June when the Treasury Select Committee questioned whether it represented a sensible use of public funds during a time of tight government spending.

MPs suggested the Lifetime ISA might be offering unnecessary help to higher earners who could afford to buy property without government support.

The committee also raised concerns that combining home buying and retirement saving within one account could discourage people from using more suitable financial products. Its report pointed to a sharp rise in early withdrawal penalties as a sign that the scheme may not be working as intended.

Financial penalties for early withdrawals have increased significantly, rising from £5.3 million in 2018–19 to £75.3 million in 2023–24. Over the same period, the number of penalised withdrawals grew from 6,800 to 99,700.

However, Moneybox data shows that most Lifetime ISA holders earn between £30,000 and £40,000 a year, suggesting the scheme mainly supports middle-income savers rather than the wealthy.

Mr McKenna dismissed suggestions of scrapping the scheme, stating: "It's nonsense to think about scrapping the Lifetime Isa, but hearing MPs ask whether it is a good use of taxpayers' money has raised that very prospect. These figures help further the case that the government has much bigger fish to fry."

Cecilia Mourain from Moneybox emphasised the programme's positive impact: "We see first-hand the difference this account makes. It helps young people across the UK save for their future, build financial confidence, and achieve life goals that might otherwise feel out of reach."

Industry advocates are pushing for reforms to the £450,000 property price ceiling, which has remained unchanged since the scheme began in 2017.

Property values have increased by 34 per cent during this period, according to Mr McKenna, who argued for adjustments to ensure the programme remains viable across the country.

Moneybox reported that 63 per cent of properties purchased through the scheme fell within the £200,000 to £399,999 range, whilst purchases between £400,000 and £450,000 increased from 8 per cent in 2021-22 to 12 per cent in 2024-25.

Financial services firm Skipton Group forecasts that average first-time buyer prices in 10 per cent of local authorities will surpass the current threshold by late 2027.

The Treasury said: “The Lifetime Isa remains focused on supporting young people to achieve the aspiration of home ownership, or to build up savings for later life, and in the last year helped about 57,000 people get on to the property ladder.”