Savers in the UK have lost nearly £119 million due to penalties imposed by HMRC (Her Majesty's Revenue and Customs) related to their Lifetime ISA (LISA) accounts, according to new data. Between April 2025 and March 2026, a record 154,100 individuals made unauthorized withdrawals from their LISAs, with each person losing an average of £3,088. This figure highlights a growing trend of people using their LISAs in ways not intended by the scheme’s rules. Meanwhile, the data also shows that 99,570 people used their LISAs to purchase their first home in the 2025/26 financial year, withdrawing over £1.5 billion for this purpose. This is the fourth consecutive year in which withdrawals for first-time home purchases have exceeded those made for other, unauthorized uses. The LISA is a government-backed savings account designed to help first-time buyers save for a home. It allows individuals to invest up to £4,000 each tax year, with the government adding an extra 25% on top of that, up to a maximum of £1,000 annually. This effectively gives savers a higher return than traditional savings accounts. However, the funds can only be used to buy a first home, and the property must be valued at no more than £450,000. This limit has not been updated since 2017, despite rising house prices across the UK. Average UK house prices have increased by nearly 24% since 2017, reaching £273,000 nationwide and £553,000 in London. If the £450,000 limit had been adjusted in line with this increase, it would now be £550,000. This discrepancy means many LISA holders are unable to use their funds to buy homes that meet their needs, or they face a steep penalty if they attempt to withdraw the money for other purposes. Those who make unauthorized withdrawals must return 25% of the funds to the government, effectively imposing a 6.25% penalty on the total withdrawal. Additionally, any interest or investment gains within the LISA are not protected from this charge. Campaigners argue that the current rules are forcing LISA holders to make difficult choices between buying a home that suits their needs or facing significant financial penalties. The only alternative is to wait until they are 60, at which point they can withdraw the money tax-free, effectively turning their LISA into a retirement fund. Sarah Coles, head of personal finance at AJ Bell, has warned that many people either do not fully understand the rules of the LISA or are forced to use the funds in emergencies, leading to costly penalties. Meanwhile, personal finance expert Martin Lewis has long called for changes to the LISA rules, including a higher property value threshold and the removal of the penalty. The government has announced plans to replace LISAs with a new First-Time Buyer ISA, which would eliminate the 6.25% penalty, but current LISA holders will not be able to transfer their funds to the new account.