LISA

Mick70

Morning all.
I am wanting to help my daughter to open a LISA (she is age 18 ) to try build up savings over the next 5-7 years or so , hopefully towards a house deposit .
Are there any particular lenders posters recommend ?   
 also , think I am right in saying that if you can get £4k into it in a financial year then the govt will add £1k .
Am I able to pay into it so long as the actual account is in my daughters name ?

many thanks
mick

Alexland

A house purchase in 5-7 years is tricky for 2 reasons. Firstly it's unclear what will happen to property prices and how limiting the £450k LISA price cap will be at the time especially if she ends up buying her first property with a partner or in the south. Secondly it's borderline on if it would be better to invest in the cash version or S&S version. The cash version will pay an interest rate less than inflation (eroding spending power each year) and an S&S version has the possibility of generating a greater return above inflation but that's not certain over the short to medium term especially as markets are not cheap at the moment.

In terms of your question your daughter would need to open the account herself and LISA providers sometimes require that the contribution comes from the individual to avoid money laundering in which case you would gift the money to her bank account and then she could contribute into the account. Yes a £4k per tax year contribution would cause a £1k bonus to be added. Don't leave it too late in the tax year to contribute incase unexpected delays occur.

Albermarle

https://www.moneysavingexpert.com/savings/lifetime-isas/

epm-84

Mick70 said:

(she is age 18 )
...
Am I able to pay into it so long as the actual account is in my daughters name ?

No. She is no longer a minor in financial terms and an ISA is an Individual Savings Accounts, exclusively for the person whose name the account is held in.  If you pay in money then to HMRC it could look like you are trying to use your daughter's tax free saving allowance.  You can give your daughter a generous gift of up to £4k per year but it then has to be her decision to put that money in to her own ISA.  

Alexland

epm-84 said:

No. She is no longer a minor in financial terms and an ISA is an Individual Savings Accounts, exclusively for the person whose name the account is held in.  If you pay in money then to HMRC it could look like you are trying to use your daughter's tax free saving allowance.  You can give your daughter a generous gift of up to £4k per year but it then has to be her decision to put that money in to her own ISA.  

https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors

"Cash subscriptions from third parties can be accepted without question unless the ISA manager holds information that shows that the cash does not belong to the investor."

However in practice many ISA Managers will choose not to accept such subscriptions.

epm-84

Alexland said:

epm-84 said:

No. She is no longer a minor in financial terms and an ISA is an Individual Savings Accounts, exclusively for the person whose name the account is held in.  If you pay in money then to HMRC it could look like you are trying to use your daughter's tax free saving allowance.  You can give your daughter a generous gift of up to £4k per year but it then has to be her decision to put that money in to her own ISA.  

https://www.gov.uk/guidance/manage-isa-subscriptions-for-your-investors

"Cash subscriptions from third parties can be accepted without question unless the ISA manager holds information that shows that the cash does not belong to the investor."

However in practice many ISA Managers will choose not to accept such subscriptions.

The bit before that is also important.
"Investors can subscribe cash to each type of ISA. They must subscribe with their own cash, and this includes payment by cheque, direct debit, charge card, credit card, telegraphic transfer and standing order. Cash subscriptions from third parties can be accepted without question unless the ISA manager holds information that shows that the cash does not belong to the investor."

The ISA manager may not be required to demand evidence that the money belongs to the daughter before accepting a payment from the father but that doesn't mean suspicions won't be raised if one person holds an account and the only person who pays in is another person, even if the ISA manager accepts the payments.

The other thing to be aware of is if after 4 years the daughter is unemployed, she will have over £16k in savings, which based on the current rules will exclude her from applying for any income based state benefits.  She might have a £4k bonus from the government for her first home but if things don't go well for her employment wise then she might lose more than £4k by being ineligible for income based benefits.

Alexland

epm-84 said:

The ISA manager may not be required to demand evidence that the money belongs to the daughter before accepting a payment from the father but that doesn't mean suspicions won't be raised if one person holds an account and the only person who pays in is another person, even if the ISA manager accepts the payments.

It's perfectly normal for parents to gift their children money so even if someone was suspicious, which is unlikely with a LISA given that withdrawal without penalty is only possible for a qualifying property purchase or age 60+ then what's the problem? Who is going to prove that this is anything other than a gift - which it would look like, as that's what's happening? It might be different if the parent was getting the money from criminal activity but that would be an issue wherever they onward transferred it.

epm-84

Alexland said:

epm-84 said:

The ISA manager may not be required to demand evidence that the money belongs to the daughter before accepting a payment from the father but that doesn't mean suspicions won't be raised if one person holds an account and the only person who pays in is another person, even if the ISA manager accepts the payments.

It's perfectly normal for parents to gift their children money so even if someone was suspicious, which is unlikely with a LISA given that withdrawal without penalty is only possible for a qualifying property purchase or age 60+ then what's the problem? Who is going to prove that this is anything other than a gift - which it would look like, as that's what's happening? It might be different if the parent was getting the money from criminal activity but that would be an issue wherever they onward transferred it.

I take it you didn't watch Martin Lewis' TV show this week. It featured a question where a mother said she had paid money into her daughter's Help2Buy ISA from an account in the mother's name.  The question related to receiving a letter from the ISA manager saying it was suspected the mother was putting her own money in an ISA in her daughter's name and they said because of that they would no longer accept any further payments from the mother and also said her daughter would no longer be eligible for the government bonus because they don't believe it's her money.  Martin's advice was to send back a strongly worded letter saying the money would only be used for the daughter to buy her first home so it's not against the rules and if they don't come back with a satisfactory response then go to the financial ombudsman.  However, he also said to avoid this kind of hassle give the adult child the money and get the child to pay into their own ISA, opposed to paying directly in to the adult child's ISA.

It might be ISA managers don't mind something like £100 being paid in by the parent at the child's birthday date and at Christmas or a larger one off gift.  However, it sounds like regular payments totaling thousands from the parent, when the child isn't paying anything into the account themselves, are a different matter.

Alexland

epm-84 said:

I take it you didn't watch Martin Lewis' TV show this week.

Honestly I have never watched it - my television diet mainly consists of Cbeebies and CNBC these days. Jim Cramer keeps the kids entertained and I quite like the dance music in Hey Duggee.

epm-84 said:

Martin's advice was to send back a strongly worded letter saying the money would only be used for the daughter to buy her first home so it's not against the rules and if they don't come back with a satisfactory response then go to the financial ombudsman.

Good so Martin agrees with my view that it's OK provided it's a gift so their money.

epm-84

Alexland said:

epm-84 said:

Martin's advice was to send back a strongly worded letter saying the money would only be used for the daughter to buy her first home so it's not against the rules and if they don't come back with a satisfactory response then go to the financial ombudsman.

Good so Martin agrees with my view that it's OK provided it's a gift so their money.

I hadn't watched the program before I posted yesterday so I thought it was interesting that at least one ISA manager interpreted the rules in the way I said they could be interpreted and is trying to block the government bonus from being awarded because of it. 

If we review both what you've said and what Martin said, the parent in question needs to:
a) Find a LISA provider which allows someone other than the account holder to pay money in, which given some may not might result in the money going into an account which isn't market leading.
b) Be aware some ISA managers who would allow a parent to pay money in to their daughter's ISA may get suspicious if the daughter doesn't make any payments into the account herself. 

While Martin sounded confident the ISA manager in question would have to back down over saying the account was ineligible for the government bonus because it was the parent's money, it will take time to appeal their decision.  Imagine if they had sent that letter a few weeks before a house purchase was planned.  It could have made the difference between that person buying their own home and missing out on a planned purchase.  So I think it's best to take his advice that the parent should give the gift and the child should pay the gift into their own ISA, rather than to focus on the fact Martin said it was within the rules, even though it wasn't a good way of doing it.

Alexland

I don't disagree with you that I would also send it between bank accounts but going back to the OP's original question Yes it is allowed and they can form their own views on if they want to go to the effort to find a LISA manager that supports it (if one even exists). In the case of the HTB ISA mentioned in the TV program (not that I watched it or know who the provider was) it might have been because that provider like many had policy/terms that ISA contributions did have to come from the account holder so they may consider the conditions of the account have been breached. Still under the requirements to treat the customer fairly if they were going to reject the contributions then it's a bit unreasonable to wait until a good sized account balance had been accumulated they should have been checking as the money was added.