Penalised for buying a 1st time house with LISA?

carrmanor

Hi,

I feel I am probably in quite a rare scenario and neither my conveyancer nor my Lifetime ISA (LISA) provider (Skipton) seems to know the answers so I'm looking to the forums for help!

I opened a Cash LISA on 6th June 2017 (the 1st day the only cash LISA to date was available). In the previous tax year (16/17), I had a Help to buy ISA (£4.5k) which I then transferred into my LISA in the 17/18 tax year. This transfer did not count towards the 17/18 £4k LISA limit which I have now filled with new money i.e. I now have a total of £8.5k in my LISA.

I am currently in the process of buying a 1st time house where completion is likely to be in May or June. I'm pushing for June as I'm aware you must have held the LISA for 12 months before you can use the money (savings + bonus) to purchase a 1st home without the withdrawl penalty in the 18/19 tax year which would be the 6th June 2018.

1st question - does anyone know how long it would take for my conveyancer to receive my LISA money i.e. what completion date do I need to aim for to be safe in the knowledge my conveyancer will receive it in time before completion? Or alternatively, can my conveyancer apply for my LISA money before the 12 months is up so the transfer can happen precisely on the anniversay date (6th June 2018)?

My other issue is that if my 1st time house purchase completes before 6th June, then I wouldn't have had the LISA open for 12 months so I would then be subjected to a withdrawal penalty to withdraw my money to buy a 1st time house, i.e. in complete contradiction to why the government set up these ISAs in the first place!

The government have tried to offset this risk by allowing you to withdraw money from a LISA in tax year 17/18 without the withdrawal penalty but that is based on a false assumption that a cash LISA was available from the 1st day of the 17/18 tax year....which it was not. This has left me with the gamble below whereby a completion date between 6th April and 6th June could see me lose hundreds, if not thousands.

Do I remove the money in tax year 17/18 penalty free and miss out on the bonus (but I guarantee I don't pay the penalty)? Or do I gamble, keep my money in the LISA in tax year 18/19 hoping I can get a completion date after 6th June then happy days I get the bonus penalty free. Do people think the government would really charge me the penalty in the above scenario?!

Any guidance would be very welcome.

Alexland

Skipton have previously advised another forum poster that they may take up to a month following the solicitor's request to release the money. Now if the solicitor gets the request in early (and makes it clear when they need the money to be withdrawn - which is quite normal in the mortgage market) then it may not be as bad as 12+1 months. You need to trust your solicitor to communicate this correctly in case Skipton feel they are being asked for the withdrawal to occur before the 12 months is up which if actioned would trigger the penalty.

Still you don't want to cut it too fine in case you encounter problems which can cause havoc if there is a chain.

As an ISA Manager then Skipton have to follow the rules and withhold the penalty if it applicable.

You don't have to exchange contracts until you have agreed a completion date you are happy with.

Alex.

Lolly88

I had this same dilemma several months ago. When I spoke to someone at Skipton regarding this they advised that the conveyancer can only make the request from the date of the one year anniversary of the account being open and not before as suggested by the previous poster. Plus the potential 30 day delay in waiting for the funds to be transferred. So realistically it looks best to wait for the funds to be in place before setting a completion date if you want the bonus or just withdraw the money before the end of the tax year if you wish to complete sooner.
It might transpire that there will be clearer guidance closer to the time like there was when the first set of people started processing Help to Buy ISA's after they were eligible to be used

carrmanor

Hi both,

Thanks for the quick replies, much appreciated.

Since writing my question, Skipton have now updated their FAQ section (probably lots of people asking similar questions as we get nearer).

They state "you can instruct your conveyancer to use your Lifetime ISA to buy your first home from 12 months after opening it" and "Once we receive the appropriate paperwork from your conveyancer we’ll get in touch with you to confirm the instruction and then pay the amount requested to the conveyancer within 30 days without applying the government withdrawal charge"so in my scenario, this means we will need a completion date after 8th July to get the bonus.