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Early withdrawal penalty for LISA

Hi,
I opened a Skipton cash LISA in October 2017 with £1.
I am planning on paying in another £3999 before the 5th April and another £4000 after the 6th April.

If I purchase a house before October 2018 will I be liable to pay the 25% penalty to use the £10k from the Lisa as my deposit?

The way I read the rules I think I will not be able to claim the 25% bonus as the account will not have been open for a year but I will still be able to use my £8k penalty free providing I use the money for a house purchase?

Can someone confirm how they see it?

My thinking is that I will not be starting to look for houses until may so it may well be past October before the purchase completes anyway. Worse case I will loose £500 of my own money which might be worth a bet against a potential £2k bonus?
It is also possible that I may be able to find another £8k before a purchase so I can leave the Lisa untouched for pension maybe
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Comments

  • eskbanker
    eskbanker Posts: 33,336 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    If you withdraw funds before the LISA has been open for a year then the penalty of 25% of the withdrawn amount applies.

    So, if you pay in £8K, which is then boosted to £10K, withdrawing that £10K results in a penalty of £2,500, leaving you with £7,500.
  • Forgive me for piggybacking on this but I find myself in a similar situtation.
    What I don't understand is why are you paying £4000 immediately after 6th April? Surely you can just hold onto this in another account and then when you know that you are going to definitely buy a place, transfer this over as I believe that it only needs to be in the LISA for a month for you to get the full bonus. Or is this incorrect?

    One additional query I have is to do with the rules regarding £450,000 limit on the LISA. I live in London and am looking to stay here although this means that house prices typically are over the threshold. I am looking at shared ownership, say for argument's sake 30%. If the place is £500,000 then with a 30% stake technically I am only paying for £150,000. Would I be allowed to use the LISA based on the £150,000 cost or do I get judged on the fact that the property itself is worth £500,000? I suspect it's the latter but I can't see anything that confirms this, and it has a significant impact on whether I contribute to my LISA or not.
  • eskbanker
    eskbanker Posts: 33,336 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    billorules wrote: »
    What I don't understand is why are you paying £4000 immediately after 6th April? Surely you can just hold onto this in another account and then when you know that you are going to definitely buy a place, transfer this over as I believe that it only needs to be in the LISA for a month for you to get the full bonus. Or is this incorrect?
    To be fair, OP didn't say anything about immediately after 6th April and could theoretically have meant 5 April 2019 (or even any date in the future), but yes, your understanding is correct, the bonus isn't dependent on how long funds have been in the account for and so many will take advantage of better interest rates elsewhere on a temporary basis first.
    billorules wrote: »
    One additional query I have is to do with the rules regarding £450,000 limit on the LISA. I live in London and am looking to stay here although this means that house prices typically are over the threshold. I am looking at shared ownership, say for argument's sake 30%. If the place is £500,000 then with a 30% stake technically I am only paying for £150,000. Would I be allowed to use the LISA based on the £150,000 cost or do I get judged on the fact that the property itself is worth £500,000? I suspect it's the latter but I can't see anything that confirms this, and it has a significant impact on whether I contribute to my LISA or not.
    It is indeed the latter, as clarified in clause 9B.42 of the scheme rules, stating that use of LISA for a first-time property purchase requires that
    the purchase price is £450,000 or less (note this figure is not relevant to the share held by the Lifetime ISA investor but to the property value as a whole i.e. a £900,000 house will not qualify because it is purchased by two Lifetime ISA investors)
  • cjv
    cjv Posts: 513 Forumite
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    billorules wrote: »
    I believe that it only needs to be in the LISA for a month for you to get the full bonus. Or is this incorrect?

    It could potentially be closer to a 2 month wait for the bonus when paying in next year. Depending on which day of the month you pay in, if I am reading Skiptons information correctly:

    https://www.skipton.co.uk/savings/isas/lifetime-isa/transfers
  • ps22379
    ps22379 Posts: 7 Forumite
    edited 28 March 2018 at 11:05AM
    Hi All,

    I have a similar issue - hoping someone can help :). Have a LISA opened with £1 in Skipton since 7th June 2017, and a H2B with nationwide prior to that. However we went sale agreed on a house in February. The vendors are waiting on a new build house and want the completion date to be end of June. I was under the understanding that we could then use the LISA since a year would have passed. However the vendors are now pushing for an exchange of contract date very soon so they can sign for their new house certain that they have a buyer. I got the H2B closed last week, having put the request in a month ago to move H2B into LISA as the Skipton deadline was approaching. I see now my H2B is closed but money has not appeared in Skipton yet.

    My first issue is that I believe we need the LISA money by exchange of contract date which will be before 7th June by a couple of months, and not the completion date after 7th June? Can anyone confirm that?

    My second issue is if that's the case I want to withdraw the money from LISA before April 6th. But its not there yet and I'm worried with bank holidays etc it won't appear in time to withdraw and I'll get hit with the penalty as I'll need to withdraw that money for the deposit.

    Worried that instead of getting a 25% bonus, not only will I not get it but will be hit with a penalty!

    Any input appreciated!
  • pink_pirlie
    pink_pirlie Posts: 238 Forumite
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    If you have enough other money to pay the deposit required on exchange you don’t need to worry as you can withdraw money out the LISA after exchange and after the 1 year anniversary.

    Who is your LISA provider?

    I was advised (finally) by HL today that so long as the money is in cash in our LISA (which it is as we didn’t choose investments) they can release the funds with very little notice and on completion.

    We currently have both LISA and a H2B as we were in limbo over what to do as we were due to complete already but due to delays completion will, like you, be near the anniversary although no date has been mooted yet.

    We now plan to keep the H2B just in case and put a different £4000 in the LISA (I think we can contribute to both so long as we only use one- but trying to double check on this one). We will just have to wait for the £4000 from 17/18 LISA until retirement if we end up using the H2B.

    You can also add another £4000 on or after 6th april to get the 18/19 bonus. But I would hold off adding that until you are certain you will use it due to the penalty on withdrawal. Just remember the bonus may take a month to arrive so if you need that to complete then put it in soon enough that it’s received ahead of completion.
    That said you will still get the bonus even if you have withdrawn the funds (source government website). Even if we withdraw the bonus after completion and lose 25% we see it as 75% is better than zero.

    Good luck with your purchase!!!
    ps22379 wrote: »

    My first issue is that I believe we need the LISA money by exchange of contract date which will be before 7th June by a couple of months, and not the completion date after 7th June? Can anyone confirm that?

    My second issue is if that's the case I want to withdraw the money from LISA before April 6th. But its not there yet and I'm worried with bank holidays etc it won't appear in time to withdraw and I'll get hit with the penalty as I'll need to withdraw that money for the deposit.

    Worried that instead of getting a 25% bonus, not only will I not get it but will be hit with a penalty!

    Any input appreciated!
  • ps22379
    ps22379 Posts: 7 Forumite
    Hi pink_pirlie,

    Thanks for your reply :)

    We will have enough to pay the 10% deposit on exchange of contracts without the money from the LISA. We're intending on putting down a 25% deposit in total. The LISA is with Skipton Building Society. I didn't actually realise that you paid a usually 10% deposit on exchange of contracts. And then a further mortgage deposit on (or just before?) completion date. I originally thought you put down your full deposit on exchange of contracts.

    I spoke to Skipton on the phone this morning and they didn't seem sure whether they could release on completion rather than at exchange of contracts. Told me to follow up with conveyancing solicitor who doesn't seem to know either...

    So still stuck in limbo a bit with uncertainty! Might try and give HMRC a call and see what they say....
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    eskbanker wrote: »
    If you withdraw funds before the LISA has been open for a year then the penalty of 25% of the withdrawn amount applies.

    So, if you pay in £8K, which is then boosted to £10K, withdrawing that £10K results in a penalty of £2,500, leaving you with £7,500.

    Consider somebody who thinks of his LISA as a long term investment and who therefore buys stocks-and-shares. First his £4k becomes £5k and then, let us suppose, there's a market crash and his investment falls by 40% to £3k. If an emergency required him to withdraw all his funds he'd lose 25% of £3k = £750. That's less than his original £1k subsidy from the taxman.

    Can this be right? If it is, it means that a LISA gives you a bit of free protection if the market falls at the cost of a bit of a penalty if it rises (supposing that you might need emergency access to the money). After a few years of subscriptions that free protection might become valuable.
    Free the dunston one next time too.
  • cjv
    cjv Posts: 513 Forumite
    Third Anniversary 100 Posts Name Dropper Newshound!
    ps22379 wrote: »
    I spoke to Skipton on the phone this morning and they didn't seem sure whether they could release on completion rather than at exchange of contracts. Told me to follow up with conveyancing solicitor who doesn't seem to know either...

    So still stuck in limbo a bit with uncertainty! Might try and give HMRC a call and see what they say....

    "There is no restriction on which stage of the property purchase you can put your Lifetime ISA funds towards."

    https://lifetimeisa.campaign.gov.uk/#withdrawing_for_your_first_home

    You should be fine :)
  • thenewguy
    thenewguy Posts: 11 Forumite
    ps22379 wrote: »
    Hi pink_pirlie,

    Thanks for your reply :)

    We will have enough to pay the 10% deposit on exchange of contracts without the money from the LISA. We're intending on putting down a 25% deposit in total. The LISA is with Skipton Building Society. I didn't actually realise that you paid a usually 10% deposit on exchange of contracts. And then a further mortgage deposit on (or just before?) completion date. I originally thought you put down your full deposit on exchange of contracts.

    I spoke to Skipton on the phone this morning and they didn't seem sure whether they could release on completion rather than at exchange of contracts. Told me to follow up with conveyancing solicitor who doesn't seem to know either...

    So still stuck in limbo a bit with uncertainty! Might try and give HMRC a call and see what they say....
    Yes, you can make as many withdrawals towards a property purchase as you like until the property completes. Once you complete, your conveyancer must tell your LISA provider within ten days and this gets reported to HMRC - any further withdrawals will be subject to the 25% charge.

    Be aware that you have to go through the whole property purchase withdrawal process for every withdrawal though - this involves you giving your LISA manager authority to pay your conveyancer, you completing a written declaration for your conveyancer, and your conveyancer submitting a written declaration and withdrawal request to your LISA manager, who then has 30 days to release funds. It’s not going to be lightning quick.
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