UK Edition
Young savers have returned £34m in Isa bonuses which were supposed to help fund the cost of buying their first home.
Would-be first-time buyers handed back record sums from their Lifetime Isas in the last tax year, money that had been earmarked for a deposit.
The sum returned to the Government tripled last year as it clawed back the bonuses it had previously given to "Lisa" savers. Account holders had no choice but to give up millions in Government top ups as they raided their savings during the height of the pandemic.
The Lisa comes with a yearly 25pc Government bonus, making it one of the most cost-efficient ways for first-time buyers to save. But those who take their money out for anything other than to buy a house or before they turn 60, either for emergencies or because their plans changed, must pay an effective penalty of 6.25pc.
These inflexible rules on saving money have prevented young savers from getting their money back since Lisas were established in 2017.
However, the Government effectively dropped exit penalties in 2020 to help those who desperately needed to access their money. This ensured that savers were only forced to return the Government bonus, rather than handing over any of their own cash, as is normally the case.
More than £34m was paid in withdrawal charges to HM Revenue & Customs during the 2020-21 tax year, more than three times the penalties paid one year prior, which totalled £10m. That is according to a Freedom of Information request from stockbroker Hargreaves Lansdown.
The charges were reduced for a single tax year, with penalties reinstated in April 2021.
Helen Morrissey, of Hargreaves Lansdown, said the system was “unfair” and penalised savers when they needed to access their own cash.
“The pandemic wrought a huge financial toll on young people, and this can be shown in how they raided their Lisas to fill gaps in their finances,” she said.
Ms Morrissey said she expected another large increase in the amount recouped by HMRC in the 2021-22 tax year.
There is a £4,000 limit on annual contributions to Lisas and they can be opened by anyone under the age of 40, who can save into them until the age of 50. Savings can be withdrawn either for a house purchase or when the account holder turns 60.