When we think of first time buyers, historically we have pictured someone in their twenties looking for their first home after flying the nest. However, with house prices rising and the increasing need for a high deposit, we are seeing more first time buyers in their thirties and forties who also need financial support onto the property ladder.
With this in mind, Lifetime ISAs were launched in April 2017 for those under the age of 40. Users of the scheme can open a Lifetime ISA and pay in up to £4,000 throughout each tax year, and can continue to make contributions up to the age of 50. The government will also add a 25% bonus to these contributions, meaning that those who save the maximum will receive a £1,000 bonus each year from the government.
This bonus can be used towards the purchase of a property and from 6 April 2018, funds (including any bonus) can be withdrawn from a Lifetime ISA to be used towards a first time residential purchase, subject to certain conditions.
Who arranges for the funds to be available for my purchase?
The Lifetime ISA differs to the Help to Buy ISA process in this respect. If you are buying through the Help to Buy ISA, then we as your conveyancers would apply for the payment. Under the Lifetime ISA, it would be your responsibility as the buyer to contact your ISA manager, whether that be a bank, building society or investment manager, who will claim any additional bonus due from HMRC. This amount will then be directly transferred to us to use during your purchase.
If a purchase falls through after a withdrawal has been made, then we will return the funds to your same ISA manager and it will not count against your annual contribution limit.
Will a withdrawal of funds used for a purchase result in an early withdrawal charge?
If you withdraw your funds at any time prior to the age of 60, there is a 25% penalty of the total amount in the account at the time of withdrawal. However, this is not the case if you are making the withdrawal to contribute towards the purchase of a property.
In this situation, you may need to make several withdrawals from your account throughout the transaction, and there is no limit to the number of charge-free withdrawals that you can make towards your first time residential purchase. All withdrawals must be used to cover the purchase price; you cannot benefit from the penalty exemption if you use money from your ISA towards your legal or surveyor fees, for example.
What criteria need to be met to use a Lifetime ISA towards a purchase?
There are several stipulations regarding use of the Lifetime ISA:
- The purchase must be of a “legal interest in land”. Therefore, the bonus from the ISA cannot be used towards the purchase of, for example, a houseboat or mobile home, as these do not constitute as providing a “legal interest in land”;
- You must be a first time buyer;
- You must occupy the property as your only or main residence; the funds cannot be used towards the purchase of a buy to let investment property (subject to an exemption below);
- You must be purchasing your property with the help of a mortgage, or heritable security;
- The Lifetime ISA account must have been open for at least 12 months.
Can the property I buy be used as a buy to let?
In the majority of cases, it cannot be used for buy to let properties. If used for this purpose, the withdrawal of funds to contribute towards the purchase will be subject to the 25% withdrawal charge.
However, if your personal or employment circumstances change, you may be able rent your property out. The treasury are taking a common sense approach and assessing on an individual basis. If the treasury feels that you did not have the intention to live in the property at the time of purchasing it, they can claim the bonus back from you. If it is clear that your change of circumstances were not planned at the time of purchasing, the treasury would not seek to claim back the ISA funds.
An exception is also made if you are a UK Crown employee serving overseas and your spouse or civil partner cannot take immediate occupation on completion. In these circumstances, where there is a longer term intention to occupy the property as your only or main residence, the purchase can take place as a buy to let until such time as you return to the UK and take up occupation.
Can I use the bonus from a Help to Buy ISA and a Lifetime ISA together?
You are not eligible to use the bonus from a Help to Buy ISA and a Lifetime ISA combined; you can only use the bonus from one or the other at the time of your purchase. You can, however, save money into both ISAs. There are several options for you in this situation; you can either:
- Transfer your funds in your Help to Buy ISA to your Lifetime ISA and use your Lifetime ISA and associated government bonus towards the purchase of your first home by making a charge-free withdrawal from your Lifetime ISA;
- Use your Help to Buy ISA funds and associated government bonus towards the purchase of your first home and continue to use your Lifetime ISA to save for the future;
- Use your Lifetime ISA funds and associated government bonus towards the purchase of your first home and withdraw the funds held in your Help to Buy ISA to put towards the purchase of your first home (or keep them in the ISA for another occasion) without the associated government bonus, or;
- Use your Help to Buy ISA funds and associated government bonus towards purchasing your first home and withdraw funds from your Lifetime ISA to put towards the purchase with the withdrawal, subject to the 25% withdrawal charge.
Where the Help to Buy ISA is closed on transfer to any other ISA including a Lifetime ISA, you are treated as if you have made a request to close the Help to Buy ISA. You will therefore be provided with a closing statement or closing letter regarding the Help to Buy ISA.
Are there options for joint ownership?
You can buy jointly with others, whether or not the other party are also first time buyers. You can also purchase a property with another Lifetime ISA investor, both benefiting from your individual bonuses. There is no limit for the number of individuals who can purchase a single residential property. There are other schemes available for you to help you on to the property ladder, including shared schemes; you can find out more about these here.
What are the declarations I am required to make?
To enable a withdrawal to take place, you must provide us as your conveyancer with the information as requested within the declaration form, which provides a declaration that the information provided is true and complete to the best of your knowledge and belief.
Upon receipt of this declaration, we would then provide your Lifetime ISA manager with a similar declaration form, which provides a declaration that we are acting as an eligible conveyancer and have no reason to believe the information provided by you is untrue or incomplete.
Once your ISA manager has received the declarations they should, within 30 days of the date of receipt, pay the amount requested to our account. A charge-free drawdown of funds will not be actioned if your ISA manager has reason to believe that the information provided to them is incomplete or false. An ISA manager will also not authorise a charge-free withdrawal from a Lifetime ISA within 12 months of the first payment to that account.
What happens if the purchase falls through and I am in receipt of Lifetime ISA funds?
If the purchase hasn’t completed within 90 days of receipt of the funds, you should liaise with us to provide the following information to your ISA manager within 10 business days from when the withdrawal for the acquisition was made:
- A declaration that the purchase of the property in question has not completed;
- The amount of the withdrawal that is being returned, and, if it is not the full amount, an account of any shortfall;
- Your name and address;
- The account number of the Lifetime ISA from which the withdrawal was made;
- Our unique conveyancer registration number with the appropriate professional body;
- A declaration, to the best of our knowledge and belief, as to whether any of the requirements for a charge free withdrawal has not been complied with, or any information provided by you or us is not true or complete.
The amount returned must be the same as the amount that was withdrawn; if there is a shortfall in the amount returned, the shortfall will be treated as a withdrawal and the shortfall amount will therefore be subject to a withdrawal charge.
If you have more questions about Lifetime ISAs and how they could support you onto the property ladder, then contact the Residential Conveyancing team on any of the following details:
Fareham: 01329 222096
Southampton: 023 8071 7449
Portsmouth: 023 9275 3575
Chandler’s Ford: 023 8071 7467