Home purchase: cash LISA, home deposit and sale fall-through

istead

Supposing I released funds from a cash LISA and transferred them to the vendor (via solicitor) to fund the home deposit at the point of exchange. If the sale fell through, I assume:

1. If it's the seller pulling out, the funds go back to the LISA.
2. If it's the buyer, the seller gets the funds.

I ask as the solicitor for my sale is claiming that the funds are only transferred at completion, but I am pretty sure they are wrong and they can be withdrawn and handed over at exchange. This is in line with info on this site, and the Home Owner's Alliance.

Also under option (2) above, would the buyer have to fork out the 25% withdrawal charge too? The cash LISA T&Cs are not clear (I am with Skipton).

Am I right?

[sorry I can't add hyperlinks above to HOA advice & Skipton as I'm a new user]

eskbanker

See https://www.gov.uk/guidance/lifetime-isas-for-isa-managers#withdrawals-for-first-time-residential-purchase:

Failed first time residential purchase

Where the house purchase falls through or does not complete within 90 days after the withdrawal, the amount withdrawn must be returned directly to the ISA manager by the conveyancer within 10 business days, unless the conveyancer has applied for a 60 day or a further 30 day extension period.

The amount returned to the ISA manager must be the same as the amount that was originally withdrawn and must be immediately repaid into the Lifetime ISA account.

If the amount returned to the ISA manager is less than the amount withdrawn any shortfall must be treated as a withdrawal and a withdrawal charge must be applied.

[etc]

The 90 day period prior to completion signifies that the funds can be used at exchange....

istead

Thanks. Well this is interesting, as my solicitor maintains that under the terms of the declaration (see conveyancer declaration pdf on the Skipton website - google "Using your Lifetime ISA to buy your first home") they cannot use the funds towards the home deposit as they will be 'accepting liability to return the funds to the ISA provider' if the sale falls through.

I still don't quite agree - I suppose their concern is if we pull out then they will have given the funds to the seller with the home deposit, and be left with a liability to pay Skipton back. Presumably they'd just claim this from the vendors?

Is this just my solicitor being funny, or a serious flaw with the MSE page advice on cash LISAs which explicitly says they can be used for the home deposit (as opposed to H2B ISAs for which the bonus only applies to the mortgage deposit)?

eskbanker

I don't see anything wrong with what MSE (and the government!) are saying but it seems to me that your solicitor is simply playing back the statement in the gov.uk documentation I quoted, i.e. that a collapsed sale means that the withdrawn money must be returned to the LISA [or a withdrawal penalty applies].

However, I'd have thought that in these circumstances the liability should be yours rather than the solicitor's and that they'd simply bill you for it if necessary, so I can't see why they're regarding this as some sort of showstopper - to me the reference to the conveyancer needing to return the money is an admin/logistical point rather than one of financial liability as such....

masonic

Just because funds can be used for an exchange deposit, it does not mean they must be accepted for that purpose. A different solicitor might take a different view, as many have done.

istead

Thanks yeah I'll put this down to experience. There should probably be caveat on the MSE advice as 'can' usually implies 'may, if you wish'

masonic

istead wrote: »

Thanks yeah I'll put this down to experience. There should probably be caveat on the MSE advice as 'can' usually implies 'may, if you wish'

It would be unreasonable to expect a guide to point out each and every aspect that you are not at liberty to insist upon.

istead

Of course but this is a pretty major one as one of the chief benefits advertised here for the cash LISA is the ability to use it for the home deposit.

masonic

istead wrote: »

Of course but this is a pretty major one as one of the chief benefits advertised here for the cash LISA is the ability to use it for the home deposit.

Were you aware your solicitor is not obliged to take the proceeds of either HTB ISA or LISA to use as part payment for a home in any way?

pinknsparkly

istead wrote: »

Supposing I released funds from a cash LISA and transferred them to the vendor (via solicitor)

You may already be aware of this, but just to clarify YOU do not release funds from your LISA. You fill in a form authorising your solicitor to request funds from your LISA provider. The funds are sent directly to your solicitor. If you had the money sent to a non-LISA account that is in your name then you would have to pay the 25% fee.