Keeping LISA when spouse buys a house

eskbanker

There's no dispute that someone who hasn't owned an interest in any property is regarded as a first time buyer for LISA purposes, and can therefore withdraw without penalty even if buying in conjunction with someone who's owned before, but the debatable point is whether being married to a property owner effectively constitutes owning an interest in that property....

xylophone

whether being married to a property owner effectively constitutes owning an interest in that property....

https://lifetimeisa.campaign.gov.uk/#withdrawing_the_basics

Alexland

Sorry xylophone which part of that webpage do you think resolves this uncertainty?

underground99

Alexland said:

Sorry xylophone which part of that webpage do you think resolves this uncertainty?

As it notes, "A first-time buyer is someone who does not own, and has never owned, a home anywhere in the UK or the rest of the world" as the laymans explanation puts it and goes on to link towards the more specific definitions "Read guidance on first-time buyers." which takes you to a further link to the 'full definition can be found here" on the actual declaration that you would sign when using your LISA to buy into a share of your wife's property.

eskbanker said:

There's no dispute that someone who hasn't owned an interest in any property is regarded as a first time buyer for LISA purposes, and can therefore withdraw without penalty even if buying in conjunction with someone who's owned before, but the debatable point is whether being married to a property owner effectively constitutes owning an interest in that property....

It's not really debatable.  Being married to a property owner does not 'effectively constitute owning an interest in that property' from the taxman's perspective. For HMRC, the ownership of capital and income is not shared just because one of you bought something. Just as being married to an owner of shares in an investment fund does not effectively constitute 'owning an interest in' an investment fund when it comes to paying tax on the income derived from it or receiving capital proceeds from the sale of it that might be chargeable to capital gains tax.  

Similarly, being married to a bank account owner doesn't make it your money; if the account pays interest it's not your income just because you married the owner. The taxman says it belongs to the owner. It's only your income or asset from HMRC's perspective if your spouse actually gives or sells you the asset and makes it yours.

Spouses can gift stuff to each other without CGT or IHT consequences so might choose to do so in a whole variety of situations.  But if Mrs House Owner doesn't choose to give her husband a piece of her house before the husband buys a piece of it from her, at the time of his purchase he will be able to truthfully sign the declaration that he has never owned a relevant interest in land. And so he can use his (e.g.) .£5000 of LISA balance, penalty-free, to pay his wife £5000 to buy a piece of her house.  Or, she can sell up, and together they can buy somewhere different, again with him using his LISA balance, penalty-free, to pay for some of the purchase.

Don't confuse this with the rules on stamp duty which drag a spouse's status into the tests. For example under the rules for higher rate stamp duty, if you're buying a property the test of whether you already have a property and might need to pay higher rate duty is also performed on your spouse to see if additional stamp duty is due, because the government don't want families splitting things into separate names to get around the 'extra stamp duty when you buy multiple properties' law. That's just a specific part of the SDLT rules that they added in to meet a policy objective. 

But this doesn't mean your spouse's property is generally also your property from HMRC's perspective. For example, it's fine for you to buy a property on your own and get a FTB stamp duty break, even if your spouse used to own a property, as long as you didn't own it too. And it's fine for you to use a LISA without penalty (or a HTB with bonus) if you've never owned an interest in residential property, even if the person you're buying it from is going to live in it with you and is married to you. Where does it say you can't?

xylophone

 The OP's  wife has a LISA. She wants to buy her first home.

She earns enough to take out a mortgage based solely on her own income and the property would be registered solely in her name.

The OP is currently living and working in Germany but it seems that he will be living with his wife in her property from time to time (when on leave presumably).

At some stage (presumably when he returns to the UK), his wife plans to sell her property and they will buy a home together.

He will be a first time buyer.
A first-time buyer is someone who does not own, and has never owned, a home anywhere in the UK or the rest of the world. 
He can use his LISA - from link
If you’re buying a home with someone who has owned a property before they don’t count as a first-time buyer. But you can still put your own bonus towards the price of the home you’re buying together.

Alexland

I accept Xylophone and BH's view that if the LISA holder doesn't own the property in the eyes of HMRC it will likely be fine but legally the property would seem to be considered a jointly owned matrimonial asset especially if the OP gets future benefit living in the property (when in the UK) as it seems even non matrimonial assets aquired before marriage can start becoming jointly owned through the process of 'mingling' and shared usage.
I might now jointly own the horrible old sofas in our living room that my wife bought from Land of Leather years before we married.

eskbanker

underground99 said:

But this doesn't mean your spouse's property is generally also your property from HMRC's perspective. For example, it's fine for you to buy a property on your own and get a FTB stamp duty break, even if your spouse used to own a property, as long as you didn't own it too. And it's fine for you to use a LISA without penalty (or a HTB with bonus) if you've never owned an interest in residential property, even if the person you're buying it from is going to live in it with you and is married to you. Where does it say you can't?

I agree about the HMRC perspective, although don't necessarily see them as the ultimate arbiter (the HTB eligibility document is headed HM Treasury for example, and as I recall previous discussions considered the issue from the perspective of courts determining collective assets in the context of divorce proceedings, rather than taxation), but in response to your last question, I don't recall seeing an official answer either way round in the specific scenario you paint.  Having said that, I should clarify that it's not a hill I have any intention of dying on, so OP can form their own view about what's been posted!

underground99

Alexland said:

 but legally the property would seem to be considered a jointly owned matrimonial asset especially if the OP gets future benefit living in the property (when in the UK) as it seems even non matrimonial assets aquired before marriage can start becoming jointly owned through the process of 'mingling' and shared usage.

In a family court when you are looking at divorce law - which is concerned with each party getting a fair deal on the ending of a partnership - there is the concept of things being acquired during the marriage being lumped together as matrimonial assets no matter whose money or assets or income was used to buy them. And as you mention, depending on circumstances, other non matrimonial assets may get taken into account. This is all part of the process used to try to figure out what would leave people in a reasonable economic position when they are going to call off their marriages, if the two parties can't figure it out amicably.

So, when you're scouting the internet for some references, you might land upon some soundbites from that context of divorce courts which - when looking at financial provision on divorce - says something along lines of, "all the money and properties and investment assets and pensions etc etc acquired during a marriage are legally considered to be jointly owned matrimonial assets no matter who paid for them".

However, the use of the term 'legally', talking about the process of divorce law which may never be relevant to you, doesn't mean that as of today you are legally a property owner or sofa owner or bank account owner or car owner or pension owner just because your wife is one of those things.

When looking at 'whose is this asset?' in your day to day lives it is quite clear cut who owns the shares or the bank account or the property. People own their own stuff and can give it to whomever they like, including on death by will.

So if you've been living in Germany while your wife is buying a home in the UK, and you are not on any ownership paperwork, and you've never bought or been given a piece of ownership of a residential property, you can sign the lengthy declaration which is along the lines of: you've never purchased an interest in residential property by way of sole or joint ownership and never owned an interest in property after you'd been given such ownership with right of occupation or possession.

If you wanted to grab a piece of your wife's house for yourself and the relationship had broken down and you were going to get divorced and can't resolve it amicably, all the matrimonial assets might be thrown into a pot when considering economic provision for the two parties. As part of doing that, it's feasible that you could get some or all of the wife's house or a share of her pension or savings account or car or investment fund etc.

But that would be something that *could* happen in the future and is not necessarily going to happen. So when buying into a house with your LISA, you don't have to say that you are already an owner of a property or pension or car or whatever. Because the calculation of what matrimonial assets are fair game for a split on divorce, is not something that needs to be done when there is no divorce. The 'legally, they're all matrimonial assets...' thing is a complete red herring for the purpose of whether you factually own something right now or have owned it in the past from the perspective of HMRC or HM Treasury.

Alexland

underground99 said:

However, the use of the term 'legally', talking about the process of divorce law which may never be relevant to you, doesn't mean that as of today you are legally a property owner or sofa owner or bank account owner or car owner or pension owner just because your wife is one of those things.

Do you have a reference for this only applying to divorce law? I agree the key point to confirm is if is the joint ownership of matrimonial assets applies during the marriage or only in the event of divorce. I also agree that generally HMT/HMRC don't seem to consider such assets as jointly owned.

MovingForwards

@SDLT_Geek has covered this a few times on the housing boards