Lifetime ISA Money in account Question

bmouthboyo · 8 June 2017 at 4:02AM

I was wondering if someone can help me with a few LISA questions.

My wife and I are 33 and have never owned a property before. We have a sizable deposit saved but will not be in a position to buy for at least 6 months and possibly longer (returning to UK after working abroad).

From what I understand we can open a LISA each for the 1 pound minimum. And as long as the LISA has 4000 pounds in it by the end of a years time the Government will add 25%.

If we needed to buy a property before this time we could remove any money we had put into the LISA penalty free as long as it is within the 12 months since opening the account.

My main question is, can we add the 4000 pounds into the LISA accounts say at 11 months 29 days and get the full 1000 (25%) from the government when the 12 month approaches, or does the money need to be in the account the whole time?

We have Santander 123 accounts so that beats the interest rate of the LISA. Although we will probably buy before 12 months time, it is a nice option if we were waiting long enough that we could get the 25% on possibly 8000 pounds combined.

Have I understood this correctly?

Thanks

Ed-1 · 8 June 2017 at 8:27AM

bmouthboyo wrote: »

I was wondering if someone can help me with a few LISA questions.

My wife and I are 33 and have never owned a property before. We have a sizable deposit saved but will not be in a position to buy for at least 6 months and possibly longer (returning to UK after working abroad).

From what I understand we can open a LISA each for the 1 pound minimum. And as long as the LISA has 4000 pounds in it by the end of a years time the Government will add 25%.

If we needed to buy a property before this time we could remove any money we had put into the LISA penalty free as long as it is within the 12 months since opening the account.

My main question is, can we add the 4000 pounds into the LISA accounts say at 11 months 29 days and get the full 1000 (25%) from the government when the 12 month approaches, or does the money need to be in the account the whole time?

We have Santander 123 accounts so that beats the interest rate of the LISA. Although we will probably buy before 12 months time, it is a nice option if we were waiting long enough that we could get the 25% on possibly 8000 pounds combined.

Have I understood this correctly?

Thanks

The LISA runs on a tax year basis rather than 12 months from account opening. There is a special rule in 2017/18 as the bonus is not paid until the end of the tax year that if you want to withdraw you can do so penalty free but you must close the LISA.

From 6th April 2018 you can put in another £4,000 each in the 2018/19 tax year and the 25% charge then kicks in for withdrawals for a non-qualifying event as the bonus is added monthly based on what you contributed the month before.

EXAMPLE
8th June 2017: Open LISA with £1.
5th April 2018: Put £3,999 in LISA.
6th April 2018: Put £4,000 in LISA.
May 2018: Bonus of £2,000 paid for 2017/18 contributions and 2018/19 contributions in the previous month.
8th June 2018: You can now withdraw penalty free for fiest-time house purchase as you've held the account for 12 months.

bmouthboyo · 8 June 2017 at 8:49AM

This seems too good to be true.
I assumed I could get £1000 added 12 months from opening the account. I now see the government will add this at the end of the 17/18 tax year, but I cannot use it until the account is open 12 months so 8 June 2018.

What I dont understand is why adding another £4000 on 6th April will mean the Govt add another £1000 in May 2018? Is this because I will have in effect max'd that tax years LISA limit within a few days?

So with me and my wife this could net us £4000 on the government?

This is new to me so sorry if I am missing something here.

Ed-1 · 8 June 2017 at 8:59AM

bmouthboyo wrote: »

This seems too good to be true.
I assumed I could get £1000 added 12 months from opening the account. I now see the government will add this at the end of the 17/18 tax year, but I cannot use it until the account is open 12 months so 8 June 2018.

What I dont understand is why adding another £4000 on 6th April will mean the Govt add another £1000 in May 2018? Is this because I will have in effect max'd that tax years LISA limit within a few days?

So with me and my wife this could net us £4000 on the government?

This is new to me so sorry if I am missing something here.

Yes.

It's exactly how pension tax relief works - do you have a pension? When you pay into a pension HMRC tops up your contribution by 25% (i.e. giving you 20% tax relief). It's the same with the LISA. You can pay in up to £4,000 per tax year. The first bonuses are not being paid until the end of 17/18 tax year. After that the bonuses are paid on a rolling monthly basis (like pension tax relief) based on what you put in the month before.

bmouthboyo · 8 June 2017 at 10:23AM

Thank you for that we signed up for 2 accounts today. 4K is not to be sniffed at.

Out of interest how long is it usually from committing to buy a house to the deposit needing to be deposited?

R11_BFC · 8 June 2017 at 3:23PM

Ed - if you dont mind please, using part of your example:

8th June 2017: Open LISA with £1.
5th April 2018: Put £3,999 in LISA.

If my daughter did that today with Skipton Building Society - would she then be able to draw out, with the full £1000 bonus on 9th June 2018 (as i think it has to be open a year) to buy a house or do you have to wait a year after the money has been paid in?

Sorry if i'm being thick...as i think you may have answered my question already!

It's just to complicate things she has a HISA as well...which we will need to transfer over at some point and that's confusing me as well!!!

Cheers mate.

Ed-1 · 8 June 2017 at 10:32PM

R11_BFC wrote: »

Ed - if you dont mind please, using part of your example:

8th June 2017: Open LISA with £1.
5th April 2018: Put £3,999 in LISA.

If my daughter did that today with Skipton Building Society - would she then be able to draw out, with the full £1000 bonus on 9th June 2018 (as i think it has to be open a year) to buy a house or do you have to wait a year after the money has been paid in?

Sorry if i'm being thick...as i think you may have answered my question already!

It's just to complicate things she has a HISA as well...which we will need to transfer over at some point and that's confusing me as well!!!

Cheers mate.

You don't have to transfer across the whole Help to Buy ISA although you can if you want. If any money was paid into the Help to Buy ISA prior to 6th April 2017 then this amount won't count towards the 2017/18 £4,000 limit. If the Help to Buy ISA is transferred in full, rather than just the pre-2017/18 contributions then any money paid into it in 2017/18 counts towards the £4,000 limit. You need to be initiating the Help to Buy transfer in early March 2018 if you want to transfer pre-2017/18 money to ensure it arrives in the LISA in good time for 5th April 2018.

The LISA needs to be open (with at least £1) for 12 months before it can be used for penalty-free withdrawal for house purchase.

R11_BFC · 9 June 2017 at 10:05AM

Ed-1 wrote: »

You don't have to transfer across the whole Help to Buy ISA although you can if you want. If any money was paid into the Help to Buy ISA prior to 6th April 2018 then this amount won't count towards the 2017/18 £4,000 limit. If the Help to Buy ISA is transferred in full, rather than just the pre-2017/18 contributions then any money paid into it in 2017/18 counts towards the £4,000 limit. You need to be initiating the Help to Buy transfer in early March 2018 if you want to transfer pre-2017/18 money to ensure it arrives in the LISA in good time for 5th April 2018.

The LISA needs to be open (with at least £1) for 12 months before it can be used for penalty-free withdrawal for house purchase.

Sorry(!) but just to summarise then, if she:

Opens a Cash LISA today with a quid - that's the crucial thing...opening one is when the whole year rule kicks in. Then transfers the whole of her HISA somewhere between now and well before 5th April 2018, including topping up contributions to £4000. She would get a £1000 bonus in May 2018?

On 6th April 2018 pay in another £4000, she would get another £1000 bonus in May 2018. Or say May, bonus in June?

Then come 9th June 2018 she'd be able to buy a house with the 2 separate bonuses? For some reason i thought you'd have to wait a year for each bonus.

As boyo says, it sounds too good to be true. Invest £4000 and make 25% profit within a month. Amazing!

Thanks Ed.

Ed-1 · 9 June 2017 at 11:41AM

R11_BFC wrote: »

Sorry(!) but just to summarise then, if she:

Opens a Cash LISA today with a quid - that's the crucial thing...opening one is when the whole year rule kicks in. Then transfers the whole of her HISA somewhere between now and well before 5th April 2018, including topping up contributions to £4000. She would get a £1000 bonus in May 2018?

On 6th April 2018 pay in another £4000, she would get another £1000 bonus in May 2018. Or say May, bonus in June?

Then come 9th June 2018 she'd be able to buy a house with the 2 separate bonuses? For some reason i thought you'd have to wait a year for each bonus.

As boyo says, it sounds too good to be true. Invest £4000 and make 25% profit within a month. Amazing!

Thanks Ed.

There's just an initial 1 year period from opening and funding the Lifetime ISA before you can withdraw penalty-free.

If the Help to Buy ISA had a balance on 5th April 2017 and it it transferred across to a Lifetime ISA by April 2018 then that gets 25% added at the same time as up to £4k of 17/18 Lifetime ISA contributions which gets paid into the Lifetime ISA by HMRC in May 2018. Another £4k can be paid in in April 2018 which also gets 25% added in May 2018.

So e.g. balance of H2B ISA at 5th April 2017 was £4,400.
Lifetime ISA opened in June 2017 with £1.
£4,400 transferred from H2B ISA to LISA by April 2018.
£3,999 added to LISA by April 2018.
£4,000 added to LISA in April 2018.
Bonus of 25% of £12,400 = £3,100 paid in May 2018.
From June 2018 penalty-free withdrawal for first time house purchase is now possible.

R11_BFC · 9 June 2017 at 12:35PM

Ed-1 wrote: »

There's just an initial 1 year period from opening and funding the Lifetime ISA before you can withdraw penalty-free.

If the Help to Buy ISA had a balance on 5th April 2017 and it it transferred across to a Lifetime ISA by April 2018 then that gets 25% added at the same time as up to £4k of 17/18 Lifetime ISA contributions which gets paid into the Lifetime ISA by HMRC in May 2018. Another £4k can be paid in in April 2018 which also gets 25% added in May 2018.

So e.g. balance of H2B ISA at 5th April 2017 was £4,400.
Lifetime ISA opened in June 2017 with £1.
£4,400 transferred from H2B ISA to LISA by April 2018.
£3,999 added to LISA by April 2018.
£4,000 added to LISA in April 2018.
Bonus of 25% of £12,400 = £3,100 paid in May 2018.
From June 2018 penalty-free withdrawal for first time house purchase is now possible.

Top lad. Cheers mate.

I hope you're getting paid by MSE for all this!

You might want to have a look on this thread again:

http://forums.moneysavingexpert.com/showthread.php?p=72673425&posted=1#post72673425

Sorry for being a pain...but all i want is the best for my daughter.

eskbanker · 9 June 2017 at 12:43PM

Ed-1 wrote: »

If any money was paid into the Help to Buy ISA prior to 6th April 2018 then this amount won't count towards the 2017/18 £4,000 limit.

Think this should be 2017 - probably covered adequately in subsequent posts but maybe worth editing this one to avoid any confusion....

Lifetime ISA Money in account Question

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