Using full balance of Lifetime ISA for property purchase - should the account close?

mageliken

I am with the Nottingham and the full balance has been transferred to the conveyancer, however I was surprised to see that the account wasn't closed and my accrued interest calculated and transferred. They seem to be assuming that it's an appropriate savings vehicle for my retirement, and a couple of support people have mentioned this too which I thought was unusual. There's usually lots of wording warning that a LISA for retirement wouldn't be suitable - and I don't plan on using mine for that.

Is this usual? I can't seem to find in the government guidance, the Nottingham guidance or template declarations any information around what would happen. Perhaps I was wrong to assume. It does mean however ~£200 of interest locked away for 30 years, or I pay a 25% penalty to withdraw it (they pay out on 5th Apr and penalty goes back up on the 6th - so maybe a narrow window to withdraw at 20% penalty).

Not a huge sum of money... but seems strange to be forced to lock it away or lose 20%/25%.

bowlhead99

If you didn't ask for the account to be closed, it won't be - if they did that automatically it could lead to loads of complaints because if someone is over 40 and closes their last ISA they would be forever unable to open another one, denying them thousands of pounds of bonuses; and some people closing the account may not have used up all their current year allowance.

A LISA generally can be appropriate for retirement, however for a 20+ year term, cash on its own would be very unsuitable for the objective as it would get eroded by inflation over time. So once you've bought your property, cash LISAs are a poor choice of retirement vehicle and an S&S LISA would be much more sensible. The Nottingham don't offer that type of LISA because they're not an investments provider, but that doesn't mean they will auto-close the product you have with them. 

When they pay you your interest, and any remaining bonus you are owed, you could simply transfer it to an S&S LISA and invest it in an investment fund to grow, then withdraw it (together with any other LISA investments you've made along the way) tax and penalty-free when you are 60+.

eskbanker

If there's still time before your purchase completes, you can make multiple penalty-free LISA withdrawals for a first-time property purchase so could perhaps transfer your LISA to another provider (thereby crystallising the accrued interest) and withdraw it once it's moved.

If there isn't time to do that, you could just close the LISA now, which would definitely return the accrued interest under the lower penalty regime.

mageliken

Thanks @bowlhead99, very valid points. It may be I let it sit in a S&S LISA and see what happens to it in the next 30 years... or if I need to accept the penalty.

@eskbanker Interesting idea transferring to crystalise the interest... it hadn't even crossed my mind as an idea. Unfortunately I am probably too tight on timing... but considering how long the purchase process has taken that isn't really a complaint