Life Time ISA

Englishpar6

Can someone give a definitive answer to the following problem. £4000 lifetime isa started on 5th September 2019. We now anticipate completing a house purchase as a first time buyer on Friday 28th August 2020 . Can we source the £4000 plus £1000 bonus from other funds/savings and then still collect the £5k life time isa funds during september, or must we accept we lose the bonus or part of it by withdrawing funds from the isa prior to 5th Sept. Basically can we still get the full benefit from the ISA even though property sale completed earlier.. Thanks

grumiofoundation

Assuming from your post you mean you deposited £4000 in 5th september 2019. In this case you will already have been paid the bonus into LISA.

As it currently stands (temporary measure until april) if you withdraw (not for house/retirement) you only pay 20% penalty (i. e. lose the bonus but get back £4000).

So you could do this and use the £4000 for house purchase. If you buy house before 1 year is up and you don't want to sacrifice bonus you will still be able to 'use' the bonus when you come to retirement (N. B. if you are HRT tax payer pension would be better). 

If you can push back completion by 1 week you would be able to use the bonus for this, is this possible?

By the  you way are able to deposit another £4000 (since we now in a different tax year to september 2019) - don't think bonus would clear by time you buy house (assuming you buy after 1 year is up) - I am not sure what happens in this case - sure someone can advise? But I would assume at very least would get a free £1000 for retirement/free £800 cash.

eskbanker

Your best bet will be to discuss this with your conveyancer, who will be the one making the relevant declaration on your behalf - https://www.gov.uk/guidance/lifetime-isa-withdrawals-for-a-first-time-residential-purchase#inv-dec doesn't seem to preclude qualifying withdrawals after purchase (provided they're linked to it) but is perhaps a little ambiguous, so worth seeking guidance from the one who'll actually be doing this.

masonic

eskbanker said:

Your best bet will be to discuss this with your conveyancer, who will be the one making the relevant declaration on your behalf - https://www.gov.uk/guidance/lifetime-isa-withdrawals-for-a-first-time-residential-purchase#inv-dec doesn't seem to preclude qualifying withdrawals after purchase (provided they're linked to it) but is perhaps a little ambiguous, so worth seeking guidance from the one who'll actually be doing this.

I don't think there is a way around the part of the declaration that states "that the investor will only use the withdrawal to finance the purchase price of the property". One cannot complete without already having financed the purchase price. Though the conveyancer might have their own interpretation of the rules, so there is nothing lost in trying.

I suspect the heel dragging approach is the safest one.

masonic

grumiofoundation said:

By the  you way are able to deposit another £4000 (since we now in a different tax year to september 2019) - don't think bonus would clear by time you buy house (assuming you buy after 1 year is up) - I am not sure what happens in this case - sure someone can advise? But I would assume at very least would get a free £1000 for retirement/free £800 cash.

In this scenario the bonus would be added as normal, so if the penalty free withdrawal window has passed, it is £1k for retirement or £800 if withdrawn with penalty, but a subsequent penalty free withdrawal can be made if the house purchase was not complete.