LSA - limit of £450000

TishyJ

Hi
My daughter has been paying into a LISA for a couple of years and has accrued a good amount of money.  She was planning on buying a property of just under the £450,000 max and using her LISA.  HOWEVER  she has now got a partner and they are planning to buy a property together. She is planning to use her LISA but between the 2 of them they can now afford a property up to £620,000.  If they go for a property of this price she will obviously have to pay back the 25% that she has been given.  They live in London so any property under the £450,000 will be small - too small for a family, which they hope to start, so they will have to move again in a couple of years.  This would involve a lot of expense including 2 lots of tax.  She realises that she could save what she has in her LISA towards a pension but she will need that money towards her new property.  Has anybody got any suggestions as to how she could best move forward?  Or does anybody know if the upper limit may be increased any time soon?

tibbles209

You've pretty much summarised her options. If the house she is going to buy is going to be over £450k then she either needs swallow the 25% penalty to allow her to use the funds for the house purchase, or leave her LISA funds untouched until she is 60 or above. There has been no indication of any plan to increase the limit. 

Tiglet2

Would it be possible for your daughter and her partner to quickly build up another savings pot for the purchase?  If so, I think saving the LISA for retirement might be a better option as clearly they have a healthy budget for a much better property than if your daughter was buying on her own.  

grumiofoundation

I have not seen anywhere any suggestion the limit will be increased. Guess the idea is if you can afford a property >£450,000 you don't need help (guess same argument is applied to loss of first time buyer SDLT relief that doesn't apply for properties over £500,000 - that they will now have to pay). 

For clarification she will not just have to pay back the bonus she has accrued. You pay a penalty of 25% on withdrawals from LISA - which works out that you get back less than paid in - a 6.25% penalty.

E.g. 
Contribute £8,000.
Bonus makes £10000.
Withdraw all, pay 25% penalty get back £7500.

Does she need to use all the money in the LISA towards the deposit? If not she could use LISA towards retirement to avoid paying the penalty - in this case it would make sense to make sure this is in a stocks and shares Lifetime ISA in order to avoid losses vs inflation over the longer term.

If she only needs to use some and can therefore afford to only withdraw part of the money (keeping the remainder in Stocks and shares LISA) the penalty can be somewhat mitigated.

For example if she currently has £10,000 in there (2 x 4,000 plus 2 x bonus) and she withdraws £4000, after penalty this will give her £3000 to use towards deposit and leave £6000 still in the LISA. [In this case would effectively mean had contributed £5000 to LISA, with effective bonus of 20%.]

owenjt

Sounds like she'll just need to pay the penalty if she needs the money - as the above post says, if she's contributed the max £4k per year she'll lose £500. Haven't heard about any changes to the LISA. There was a petition to permanently reduce the withdrawal penalty from 25% to 20% (following the temporary reduction up until April 2021 to help people whose income had been affected by COVID) but the Government responded to say they have no plans to do this.