HMRC fining people £11,000 for mistake when 'withdrawing their own money'

Savers are being hit with a tax charge while attempting to put money away from property and HMRC data indicates many savers are losing thousands of pounds to the taxman.

Savers have been warned over a HMRC tax charge of up to £11,000. Savers are being hit with a tax charge while attempting to put money away from property and HMRC data indicates many savers are losing thousands of pounds to the taxman.

Lifetime ISA savers are facing substantial penalties for withdrawing their money, with some charged up to £11,000. Data from HMRC revealed that in the 2022-23 tax year, the average of the top 25 penalties for unauthorised withdrawals was £11,000.

These penalties affected a significant number of savers, with 15,977 individuals having to return £1,000 or more. The severity of the charges escalated, with 6,139 savers hit by penalties exceeding £2,000. 851 savers faced penalties of over £5,000.

READ MORE Martin Lewis issues 'must do' task for energy customers

The tax-free savings accounts are designed for saving for a first home or retirement and can be opened by adults under the age of 40. You can put away up to £4,000 a year until you are 50, and get a 25 per cent top up on your savings from the government. If you saved the maximum £4,000 a year from the age of 18, you would get a total bonus of £32,000.

But the number of savers paying penalties for “unauthorised withdrawals” (taking out money that isn’t for a house deposit or retirement) is increasing. “The penalty is hugely unfair, because it takes away some of your hard-earned savings,” Rachael Griffin from the wealth manager Quilter said.

Rajan Lakhani, a spokesman for money app Plum, said: "These findings show how the current ceiling is shutting people out of the housing market. Mr Lakhani called on Chancellor Rachel Reeves to use the upcoming Budget to "fine-tune the current Lisa LISA so young families can realise the dream of home ownership sooner."

Laura Suter from the investment platform AJ Bell said: “The 25 per cent early withdrawal charge effectively acts as a 6.25 per cent exit penalty. It is deeply unfair and punishes those for whom a change of circumstances means they can’t pursue their homeownership aspirations.”