LISA for a remortgage with FTB buyer

RobertKr

The latest news about Halifax HTB ISA rate drop forced me to seek alternatives hence here is my question:

I've bought a house last year (FTB) but due to circumstances (wife was a student during the process (nurse), no fixed income, and as dependant was messing up with affordability), we decided to get a single income mortgage (only my name on the deeds). I had an HTB ISA (almost 12k!) at the time but the house price was slightly above 250k and I didn't get any bonus:(. I used also an HTB loan (affordability) and the mortgage is 5y fix.

Plan at the moment to remortgage in 4.5y time (using both incomes), in the process pays off/add to remortgage htb loan and add wife to the deed (she graduated/started full-time job as a nurse in the summer last year).

As far as I understand wife is still FTB (on the paper), she kept her HTB ISA (transferred to Halifax a few months ago;) as an emergency account.

As she is still below 40 she can open LISA, remortgage is 4y away, the house is (and is going to be for sure) below 450k price tag but can she use LISA (with bonus) when we remortgage (together)/pay htb loan/add her to the deed?

I've tried to google around this problem (couldn't find any LISA FAQ) but to no avail.

bowlhead99

If she's not on the deeds of your house or an owner by some other document (e.g. deed of trust), and didn't ever own residential property at some other time in the past, she is still a FTB as you say. 

When you 'add her to the deeds' she will be acquiring an interest in the property from its current owner (you). If she withdraws money from her ISA to fund part or all of her purchase price for the interest she acquires, there is no penalty. The fact that she's going to own it as a joint owner with someone who already owned the property does not stop her withdrawal being eligible to be penalty-free

You mentioned 4.5 years away; if she opens a LISA today she can stuff it with up to 4k now (tax year 2020/21) and add 4k in each of the tax years 21/22, and 22/23, 23/24, 24/25 before buying an interest in the property from you in summer 2025. So that would be 20k contributed to the LISA and get £5k of bonuses along the way. A jolly good wheeze.

You can see from the guidance to lifetime ISA managers (Lifetime ISA withdrawals for a first time residential purchase - GOV.UK (www.gov.uk) ) that:

Lifetime ISA investors can also purchase a residential property either:

• jointly with other purchasers, whether or not the other purchasers are also first time purchasers (there is no limit to the number of individuals who can purchase a single residential property together)

• as a joint owner with another person who may already own the property

RobertKr

Thanks for the answer, so there is hope:), I have to say I am still a little bit suspicious about this phrase "purchase" when we change property ownership to include her as I don't see it as a process of purchase (but I am not a conveyancer).
She is not the owner (only my name on all documents, as far as I remember she had to sign some letter from the bank preventing her from claiming the property before the bank when I stop paying the mortgage, never be the owner of anything etc.
She is obviously reluctant to put money in LISA as if she won't be able to use it in 5y time penalty on withdrawal has to be paid or money has to be kept there till she is 60.

bowlhead99

RobertKr said:

Thanks for the answer, so there is hope:), I have to say I am still a little bit suspicious about this phrase "purchase" when we change property ownership to include her as I don't see it as a process of purchase (but I am not a conveyancer).

Conveyancing is simply the process of conveying the ownership or all or part of a property from one person to another, using legal documents to support the transfer.

You own a house. She doesn't own a house. You can sell her a share of your house for whatever you like, or just give it to her for nothing. The solicitor / conveyancer will draw up whatever contract or other document is necessary to support the change of ownership.

For example, say your house is worth £200k and there is a £150k mortgage. You can say she is going to become a half owner of the house if she gives you £25k cash (half what the £50k equity is 'worth') and takes on joint responsibility for the £150k remortgage, so her 'consideration' for the transaction was £100k in total.

Or you can say that because you love her, she will become a half owner without paying you anything in cash, as long as she goes on the mortgage with joint responsibility for paying it off, so effectively she's got a half share of the house for only £75k.

And in practice, you may decide to keep paying the mortgage off from your own bank account while her own bank account will be used for buying the household's monthly stockpile of wine and toilet roll, or whatever people are buying under covid-25... so the paper value of the transaction is £100k or £75k but the practical cost to her is nothing much.

Or you can say that you think the house is worth much more than the market values it at, so you want her to pay you £50k and take joint responsibility for the £150k mortgage, implying a total cost to her of £125k to 'buy into' joint ownership even though the bank only reckons the house is worth £200k for the purposes of mortgage valuation.

As you are married, and people can freely move assets between spouses without creating any real capital gains tax or inheritance tax issues, there are no major consequences of setting the purchase consideration as whatever you like for CGT purposes or for IHT purposes. What she 'pays' as consideration for the transfer (any cash, plus the taking-on of the joint share of the mortgage) is only really relevant for stamp duty. Rates may change in the future, but after the current SDLT holiday is ended, SDLT rate for first £125k is 0% so it wouldn't make a difference to the total stamp duty due, in the examples above whether she was 'paying' £75k or £100k or £125k.

Alexland

bowlhead99 said:

You can sell her a share of your house for whatever you like, or just give it to her for nothing. The solicitor / conveyancer will draw up whatever contract or other document is necessary to support the change of ownership.

Remember it would be the buyer's solicitor who would perform the penalty free LISA withdrawal (not her) and whatever the price the OP agrees to sell their share at the LISA rules would still require the overall market value of the property to be within the £450k limit which the solicitor may require a recent survey/valuation to document.

I am unsure if a single solicitor would be willing to act on behalf of both the buyer and seller in this transaction due to the potential conflict of interest and the buyer's solicitor may still require searches to be conducted to protect their client's interest (and any claim against them..)

RobertKr

If the process means we have to use two solicitors (two fees?) so be it, still worth acquiring this potential 5k bonus. As I said I used help to buy 20% loan on the house, hence I will have to get RICS valuation to sort out/pay off the loan so this should be sorted. House was purchased for 275k (new build) so it shouldn't go over 450k in 5 years' time, and if it does, an increase in value would compensate for any lost lisa bonuses. But I think (and hope) that we have these crazy increases in valuation behind us.

Alexland

Of couse she would still get the £5k (or more) in LISA bonuses by using a S&S LISA to invest for age 60+ might be another option worth considering.