What Is A Lifetime ISA?

Saving for a first home is a great way for young adults to invest in their future. Conveyancing Expert bring you all the info you need about Lifetime ISAs and how they can be used for property purchase.

What Is A Lifetime ISA?

The lifetime Isa (LISA) is the newest member of the ISA family. It is a tax-free savings or investments account designed for people who are aged 18-39 at the time of opening it. The savings are supposed to go towards buying a first home or retirement.

The government launched the Lifetime ISA in 2017. You can deposit up to £4,000 a year into it after which the government pays an annual ‘bonus’ of 25% on the contributions you have made. This means you could earn as much as £1,000 worth of bonus a year for free.

Anyone can open a Lifetime ISA as long as they are:

  • Between 18 and 39 years old
  • A UK resident (or a military service member based overseas or their spouse/civil partner)

Account holders can continue adding money every year until the age of 50, after which, no more payments can be made but the account can stay open.

You can open more than one Lifetime ISA, but you can only open one per tax year and pay into one per tax year.

Any contributions you make towards your Lifetime ISA count towards your overall ISA limit, which is the maximum amount you can save into all of your ISAs combined, in any given tax year. For the 2020/21 tax year, for example, the overall ISA limit is £20,000.

Claiming Your Bonus

Your bonus, which can also generate interest, is based on payments you make into your account from the 6th of the month to the 5th of the following month. A government bonus will be claimed by your Lifetime ISA manager and added into your account each month. You don’t need to do it yourself.

Using Your Lifetime ISA To Buy Your First Home

When your account has been open a year or more, you can withdraw funds to buy a home costing up to £450,000.

The property you’re purchasing must:

  • Be in the UK
  • Be the first, and only, home you own
  • Be where you intend to live (not a buy to let)
  • Be purchased with a mortgage.

If the above criteria are met, your withdrawal will be exempt from charges.

You shouldn’t just withdraw money from your Lifetime ISA for any old reason because this will incur a charge. Work closely with your residential conveyancing solicitor and your Lifetime ISA provider. You will have to sign an investor declaration form which you can obtain from your ISA provider. You’ll then submit your completed form through your conveyancer, permitting you to withdraw from your Lifetime ISA to buy your home. Your money is usually transferred within 30 days from when your ISA provider receives the completed forms.

If you are looking for a conveyancer in Manchester to assist you with buying a property with a lifetime ISA Get in touch today for a hassle-free quote.

Using Your Lifetime ISA To Buy A Home

Your Lifetime ISA funds can be used at any stage of property purchase. Home can put the funds towards the deposit in which case, the purchase must be completed within 90 days of your residential conveyancing solicitor receiving the funds.

In some cases your conveyancer can write to HMRC for an extension if it takes longer than 90 days to complete your property purchase.

If you’re purchasing with another first-time buyer with a Lifetime ISA, both of you can use your ISA and bonus towards the sale. If the other person IS NOT a first-time buyer, you can still use YOUR Lifetime ISA, just not theirs.

Lifetime ISAs can also be used towards buying shared ownership properties but the total price of the property must still be under £450,000.

Using A Lifetime ISA For Other Purposes

If you don’t want to use your Lifetime ISA to buy your first home, you can only withdraw funds without incurring a charge for the following:

  • If you become terminally ill
  • You are over the age of 60

In any other circumstance, your withdrawal will incur a large 25% fee.

If you need a conveyancer in Manchester Who can help you with all aspects of a Lifetime ISA Get in touch today

Lifetime ISAs V HelpTo Buy ISAs

Lifetime ISAs are similar to Help to Buy ISAs since they’re both designed to help first time buyers and they offer government top up bonuses of 25% on certain limits. However, Help to Buy ISAs are now closed to new applications. Existing Help to Buy ISA account holders can still save in their accounts until November 2029 and claim their bonus for an additional year after that.

Further differences between Lifetime ISAs and Help to Buy ISAs include:

  • Savings Amounts – With a Lifetime ISA, you can save up to £4,000 a year. With a Help to Buy ISA, the maximum savings £2,400 a year (£3,400 in the first year).
  • Payment Times – With a Lifetime ISA, your top up bonus is paid monthly. With a Help to Buy ISA, your bonus can only be collected between exchange of contracts and completion and can be used towards your overall or mortgage deposit, but not at exchange.
  • Withdrawal Charges – With a Lifetime ISA, withdrawing before the age of 60, except for a first home purchase or terminal illness, incurs a 25% charge. With a Help to Buy ISA, there are no extra charges on withdrawals but bonuses are only paid for first home purchases.
  • Property Purchase Price – With a Lifetime ISA, the maximum property price is £450,000 anywhere in the UK. With a Help to Buy ISA, you can only spend up to £250,000 (£450,000 in London).

You are allowed to transfer your Help to Buy ISA into a Lifetime ISA, though those funds will count towards your yearly Lifetime ISA limit.

For a hassle-free conveyancing quote, call us today. Our services are always high in quality, value for money, and we utilise the most effective case management systems to ensure smooth transactions and happy clients.

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