Lifetime ISA for First Time Buyers
We are mortgage advisers and so not authorised to give tax advice but we would like to remind you factually about first time buyer deposit & lifetime ISA’s. The Lifetime ISA was introduced in 2017 to help first time buyers get on the property ladder or save for later life.
Like all ISAs, the Lifetime ISA (LISA) is a really tax-efficient way to save money for the future because any interest, dividends and profits you make are free from tax.
However, with a LISA, you also get a 25% government bonus worth up to £1000 every tax year depending on your level of contribution. The maximum contribution each tax year is £4000. If you don’t act before April 5th, then you lose this tax year’s allowance & the potential for a 25% bonus.
The Lifetime ISA limit of £4,000 counts towards your annual ISA limit, currently £20,000 per tax year. The tax year runs from 6th April to 5th April.
In order to open a Lifetime ISA, you must:
- Be over 18 and under 40 years of age
- Have never owned a home before, in the UK or anywhere in the world
- Be a UK resident or a Crown servant (such as a member of the armed forces serving abroad)
You can withdraw money from your Lifetime ISA if you’re:
- buying your first home
- aged 60 or over
- terminally ill, with less than 12 months to live
You’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (also known as making an unauthorised withdrawal). The withdrawal penalty is charged at 25% of your total balance at the time & therefore you pay back a bit more than you received from the Government by way of bonus.
You can use your LISA savings for your first time buyer deposit if all the following apply:
- the property costs £450,000 or less
- you buy the property at least 12 months after you make your first payment into the Lifetime ISA
- you use a conveyancer or solicitor to act for you in the purchase
- you’re buying with a mortgage
Some Risk Factors to be Aware of:
- Currently, you can only contribute until age 50, even though you must open the account before 40.
- The £450,000 limit hasn’t changed since 2017, and with rising home prices many savers are finding their LISA savings unusable for their first home. If the savings are still necessary for the deposit then the withdrawal would be subject to a 25% charge.
- The 25% charge on unauthorized withdrawals hits the total pot (contributions + bonus), meaning you lose more than just the bonus itself. For example, taking £1,000 back results in receiving only £937.50. If you can’t confidently ringfence these savings & leave them untouched then a more flexible savings account may be better.
- Conveyancers can be concerned about the risk of purchasers losing their deposit if a purchase falls through when using a Lifetime ISA. This risk is mitigated in Scotland when generally speaking, a deposit is not included at conclusion of missives, the full purchase price is paid on completion day. It is more of a risk in England where a deposit can be included at the point of exchange of contracts.
If you have a Lifetime ISA and a Help to Buy ISA, you can only use the government bonus from one of them from your furst time buyer deposit.
You can transfer money from a Help to Buy ISA to a Lifetime ISA. If you transfer money from a Lifetime ISA to a Help to Buy ISA you’ll have to pay the 25% withdrawal charge.
You can find more information on gov.uk website per below.
YOUR HOME (OR PROPERTY) MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBTS SECURED ON IT.
