Minimum One Year Penalty Loophole?

Foddman

My girlfriend and I are saving for a mortgage whilst renting a house from my Dad (which we'll be buying August 2019.. so 9ish months away)

I've got a LISA which has been open for over a year but she doesn't.. I was wondering if anyone could clarify something for me..

We're saving into a joint account at the moment but I was thinking we could split the money, I'll put half in my LISA and she could open one and do the same

When we then get the bonus £1000 each.. she could transfer all of the money in her LISA into mine we would allow us to get around the "minimum one year" rule for withdrawing without penalty?

Any thoughts on this would be great! Thanks

eskbanker

The short answer is no, there isn't a loophole like that, but hopefully it's not necessary anyway....

You can pay up to £4K into your LISA in any given tax year but that would include any 'transfer' from someone else's LISA, in that you can't actually use the ISA transfer process between different individuals so it's effectively withdrawing and paying in as separate transactions.

Your reference to £1000 bonus makes me think that you may not have grasped the allowances and timings - between now and next August you can accumulate whatever you had in the LISA as at 5 April 2018 plus another £8K (i.e. 2018/19 and 2019/20 annual allowances), all of which will earn the additional 25% bonus, which is paid into the LISA within 4-8 weeks of each contribution being made.

So, going back to your original question, if there's going to be enough headroom in your LISA to pay in the contributions for both of you via a pseudo 'transfer', then you might as well just put them all in there in the first place! If there isn't going to be enough headroom in your LISA then your suggested loophole wouldn't work anyway, but your girlfriend could perhaps use a Help To Buy ISA instead, if the property is below £250K (or £450K in London).

Foddman

I think I'm following.. just to clarify though

Say for instance I put 4k in there before April 2018 - that would now be 5k post bonus..
I could put in another 4k before April 2019 which would then become 5k post bonus giving a total of 10k
I could then put in another amount (up to 4k) and get the bonus on that 4 weeks after the money was put in?

I was under the impression the bonus was paid at the end of the tax year on whatever had been paid that year?

eskbanker

Foddman wrote: »

I was under the impression the bonus was paid at the end of the tax year on whatever had been paid that year?

That only applied during the first year of the product's existence, i.e. tax year 2017/18, while they bedded in the rules and systems and accommodated the transitional arrangements for those choosing to migrate from Help To Buy ISAs.

Since April 2018, bonuses are paid on a monthly cycle, which effectively means that you'll receive the bonus within 4-8 weeks of any contribution.

Foddman

Oh... I didn't realise that - well that's a complete game changer then

Thanks very much for highlighting this! :-)