Lifetime ISAs are increasingly being used to assist people with the purchase of their first home. As well as being a good way to save money towards your deposit, the Government will also pay a bonus of 25% of the total amount saved – but only in certain circumstances.
If you are aged over 18 and under 40 then you should be able to open a Lifetime ISA account.
How much can I save per year?
At present, you can save up to £4,000.0 a year in your Lifetime ISA, up until your 50th birthday. Do remember, however, that money in a Lifetime ISA will count as part of the total that you can have in ISA type savings accounts (currently subject to a £20,000 limit for the 2020-21 tax year).
Can I claim the Government bonus?
The Government will only pay the 25% bonus if you withdraw your savings when you turn 60, if you become terminally ill, or when you buy your first home.
In order to be eligible for the Government bonus when buying your first home, there are certain criteria you must meet. These are:
- the property you are buying will be the first property you’ve owned or had an interest in (any co-purchaser does not need to be a first time buyer, but the person with the Lifetime ISA must be)
- you will occupy the property as your main residence after completion
- you are buying the property with a mortgage
- the purchase price is £450,000 or less; and
- it has been more than 12 months since you first started saving in your Lifetime ISA.
I’m buying my first home – how do I claim the Lifetime ISA bonus?
If you are buying your first property and meet all of the criteria, then both you and your lawyer will have to complete a declaration which confirms the amount that you are withdrawing and the details of the property that you buying. Your lawyer will send the declarations to the bank or building society which you have the Lifetime ISA with.
Once your bank or building society receives the declarations, they will request the bonus from the Government and then send the amount that you have requested to be withdrawn, along with any bonus, to your lawyer.
It can take up to 30 days for the funds to be released to your lawyer so it is important to let them know as soon as possible if you intend to use a Lifetime ISA to fund part of your purchase.
When can I request the bonus?
You can request the Lifetime ISA bonus at any time but legal completion of your purchase must take place within 90 days of the ISA funds and any bonus being paid. If completion does not take place within 90 days then the funds must be returned unless an extension is granted by the bank or building society.
Do I have to withdraw all of my savings from my Lifetime ISA when requesting the bonus?
You can withdraw as much or as little of your savings from your Lifetime ISA as you want at any time. However, if you take money from the Lifetime ISA that is not classified as a ‘permitted withdrawal’ HMRC will make a 25% charge on the balance withdrawn. This means you may get back less than the amount you pay into the ISA unless you use the money strictly for the purposes the rules allow.
Can my co-purchaser claim the Lifetime ISA bonus as well?
If you and any co-purchaser both meet all of the requirements then you can both use your Lifetime ISAs and both claim the 25% bonus.
The above is intended for informational purposes only and does not constitute legal advice. If you would like to discuss Lifetime ISAs further, please contact a member of the Residential Property team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at April 2020.