Cash ISA to Lifetime ISA - Question about Withdrawal for 1st house within 8 months

calltobala

Hello

I saw few posts about Lifetime ISA and I missed about this new Lifetime ISA product. I apologise for few questions because I couldn't find FAQ's for my situation regarding withdrawal.

I was saving for the last few years in Cash ISA for my 1st house deposit and trying to buy my 1st house for the last 1 year.

I don't know when will I my first property going to work out, it could be in 2-3 months or more than a year.

Question:
1. Can I open fresh LIFETIME ISA and withdraw for 1st property deposit within 1st year without any penalty?

2. Can i transfer my old ordinary CASH ISA which i saved for few years for deposit into Lifetime ISA and get bonus but I would like to know if I can pay for deposit for my 1st property within 1st 12 months?

Please suggest me with your ideas.

Thanks

eskbanker

Lifetime ISAs need to be open for 12 months before withdrawing funds, you may find it better to open a Help to Buy ISA instead.

bowlhead99

1) Can I open fresh LIFETIME ISA and withdraw for 1st property deposit within 1st year without any penalty?

If you open a LISA now, then only before 5 April 2018 you should be able to withdraw without any government penalty because until that point, no bonuses will have been calculated or applied to your account

So, you can take your money out but it will not have a bonus in it. If you were likely to be buying before that date, you should open a Help To Buy ISA instead, as Eskbanker suggests - which lets you take a penalty free withdrawal at any time and will let you get a bonus without needing to have had the account open for twelve months. If claiming a bonus on a help to buy ISA, it just needs to have minimum £1600 in it so that it is worth the solicitor's time and the government's claiming the 25% bonus for you.

If your account is open beyond 5 April with un-withdrawn funds in it, the ISA manager will kick off the process to apply for a bonus on your remaining 2017/18 tax year contributions to the product, which they will apply to your account. As the account will include bonus funds, you will no longer be able to withdraw penalty free unless the withdrawal is more than 12 months after account opening and the purpose is to buy a qualifying property (or you reach the age of 60).

2) Can i transfer my old ordinary CASH ISA which i saved for few years for deposit into Lifetime ISA and get bonus but I would like to know if I can pay for deposit for my 1st property within 1st 12 months?

If you would like, you can contribute to the LISA using money from an existing old ordinary cash ISA instead of contributing new money from a bank account, and it will qualify for a bonus using the exact same rules as how new money from your bank account paid into the LISA would qualify for a bonus. But

a) you still can't contribute more than the limit of £4000 in the current tax year, even if it comes from an old "ordinary" cash ISA;

b) as explained in answer (1), you can withdraw the money in less than one year (e.g. open the account in June 2017, withdraw in February 2018) but there will be no bonus if you do that, because the bonus will only be claimed by the ISA manager in relation to un-withdrawn funds and applied to the account after 5 April 2018. Once the bonus has been claimed, you can withdraw penalty-free only if you have had the account open 12 months.

So for example, let's say you open the account 2 months from now, on 21 May 2017:

- before 5 April 2018 no bonus has been claimed, so you can withdraw penalty-free, with no bonus.

- from 6 April 2018 the bonus for 2017/18 has been claimed and will arrive on your account in a few weeks. From that point you can no longer take penalty free withdrawal because bonus money has been claimed. You can only get the money out from that point onwards by paying a penalty which will be greater than the amount of bonus, *unless* you wait until the account has been open a full twelve months (21 June 2018) at which point you can withdraw the money including the bonus for the purpose of buying a qualifying property, with no penalty.

- At 6 April 2018 you are in a new tax year so you can deposit a further £4000 using up your 2018/19 LISA contribution allowance. If you do, you should receive the bonus on that during May 2018. But still, you have not completed your twelve months since first opening the account in June 2017, so you will be penalised if you try to take money out before 21 June 2018.

Ed-1

bowlhead99 wrote: »

1) Can I open fresh LIFETIME ISA and withdraw for 1st property deposit within 1st year without any penalty?

If you open a LISA now, then only before 5 April 2018 you should be able to withdraw without any government penalty because until that point, no bonuses will have been calculated or applied to your account

So, you can take your money out but it will not have a bonus in it. If you were likely to be buying before that date, you should open a Help To Buy ISA instead, as Eskbanker suggests - which lets you take a penalty free withdrawal at any time and will let you get a bonus without needing to have had the account open for twelve months. If claiming a bonus on a help to buy ISA, it just needs to have minimum £1600 in it so that it is worth the solicitor's time and the government's claiming the 25% bonus for you.

If your account is open beyond 5 April with un-withdrawn funds in it, the ISA manager will kick off the process to apply for a bonus on your remaining 2017/18 tax year contributions to the product, which they will apply to your account. As the account will include bonus funds, you will no longer be able to withdraw penalty free unless the withdrawal is more than 12 months after account opening and the purpose is to buy a qualifying property (or you reach the age of 60).

I might add that if you withdraw from a LISA this tax year then the "17/18 rule" requires that the LISA is closed. That way (as LISAs aren't flexible ISAs) you can then start up a new one later on and have the full £4k limit intact.

calltobala

Many thanks for your detailed reply :j. It showed some clarity for me to rethink about ISA. It looks like i wasted my Cash ISA for last 8 years into small savings ISA. I should have used it earlier

Ed-1 wrote: »

I might add that if you withdraw from a LISA this tax year then the "17/18 rule" requires that the LISA is closed. That way (as LISAs aren't flexible ISAs) you can then start up a new one later on and have the full £4k limit intact.