LISA 25% bonus withdrawal rules/regs

DTlovescakes

Hello,

I have a LISA that is 7 months old, meaning that in 5 months time I will be able to withdraw to purchase my first home. Because we have recently entered into a new tax year, I am legible to receive another 25% annual bonus for every £ deposited. My questions:

Do I need to open a new LISA to do this?
If not, can I add to my existing LISA?
If the second option, do I need to have this new deposit for a further 12 months before I can withdraw to use as a deposit for my first home? Or is the 12 month period of savings from the date of account opening/first deposit?

I am 40 in a couple of months, so I believe I have until then if I need to open a new one!!

Any help is appreciated. TIA!

Ed-1

DTlovescakes said:

Hello,

I have a LISA that is 7 months old, meaning that in 5 months time I will be able to withdraw to purchase my first home. Because we have recently entered into a new tax year, I am legible to receive another 25% annual bonus for every £ deposited. My questions:

Do I need to open a new LISA to do this?
If not, can I add to my existing LISA?
If the second option, do I need to have this new deposit for a further 12 months before I can withdraw to use as a deposit for my first home? Or is the 12 month period of savings from the date of account opening/first deposit?

I am 40 in a couple of months, so I believe I have until then if I need to open a new one!!

Any help is appreciated. TIA!

You can continue to pay into existing LISA(s). The 12 months applies from the date of the initial deposit (if you transfer a LISA into another LISA this is the date of the first deposit into the original LISA).

Alexland

If you will be 40 when you buy the property you may wish to ask your solicitor to make a partial LISA withdrawal of a fixed amount leaving a token amount in the account.
This would stop the LISA getting closed so you could then continue to contribute (transferring to a S&S LISA provider) in future tax years for further bonuses until age 50 for withdrawal from age 60.

DTlovescakes

Thank you both.
@Ed-1 does this means paying in an additional £4000 now (= an additional £1000 gov. bonus) can be withdrawn for a house purchase in 5 months? Or do I have to wait an additional 12 months to receive the 25% bonus/not be hit with an early withdrawal fee?

Alexland

It just needs to be 12 months since the account was opened with the initial contribution so you are fine to add money now to buy in 5 months.

DTlovescakes

@Alexland - Is there a minimum balance for the LISA to remain open?

Alexland

Suggest you don't go below what your provider considers a minimum opening balance.

DTlovescakes

Would I get the additional 25% bonus if I did that?

eg 
£4K invested 7 months ago (=£1k gov bonus)
£4K invested soon (=£1k gov bonus)
=£10k + interest that can all be withdrawn in 5 months time?

Reason I ask is that I was told otherwise last year.

Alexland

The bonus is added into the account a month or two after each contribution. There is usually a penalty for withdrawal before age 60 with the exception that the solicitor can make a penalty free withdrawal (of all or some of the money) once the account has been open 12 months from the initial contribution for a qualifying property purchase.

epm-84

Alexland said:

The bonus is added into the account a month or two after each contribution. There is usually a penalty for withdrawal before age 60 with the exception that the solicitor can make a penalty free withdrawal (of all or some of the money) once the account has been open 12 months from the initial contribution for a qualifying property purchase.

I find the bonus is usually the last week of the month following the one where you pay in e.g. paying in on 1st April would mean the bonus is paid on the last week of May.

The withdrawal penalty has been lowered to 20% until the end of the tax year, meaning for withdrawals in the current tax year you'll lose the bonus by making a withdrawal but won't lose any of your original investment.

epm-84

DTlovescakes said:

Would I get the additional 25% bonus if I did that?

eg 
£4K invested 7 months ago (=£1k gov bonus)
£4K invested soon (=£1k gov bonus)
=£10k + interest that can all be withdrawn in 5 months time?

Reason I ask is that I was told otherwise last year.

Sounds like you're getting 2 rules mixed up.

One rule is that you can't use the money for a LISA for a house purchase for 12 months from the date of opening without penalties applying.

Another rule is that you can invest up to £4000 per tax year and you can get up to £1000 bonus per tax year.

That means if you open an account in March you can pay in £4000 on 10th March and £4000 on 10th April.  If you open the account on 6th April and pay in £4000 then you need to wait 12 months before you can pay in again.

It also means if you opened an account with £1 on 6th April 2020, you could pay in £3999 on 1 April 2021, another £4000 on 7th April 2021 and by the end of May 2021 you'd have £10,000+interest and you could use that for a first house purchase.