Transfer a cash Lifetime ISA (LISA) to stocks and shares LISA?

wear_galoshes

Hello

I opened a cash LISA (Skipton) a few years back with the intention of using it towards my first house purchase. I've now finally bought a house, but was lucky enough (and unlucky as well!) that the purchase price was just in excess of the £450k LISA limit - meaning I'm stuck with the cash LISA unless I want to forfeit the ~£250 per government bonus (and miss out entirely on each £1000).

A friend suggested switching to a stocks and shares LISA instead, and I spoke to Skipton and they said I should be able to do this, but as they don't offer one I need to find another provider. So far, however, I have not been able to find any way to actually achieve this. BMO are the only provider I've found so far who claim to accept LISA transfers, but they told me that I can't do it because it would involve opening a new LISA and I'm already over 40 so this isn't possible.

Am I really stuck with the cash LISA (not a very attractive investment opportunity for the next 20 years) or have to lose out on a sizeable sum just because I was lucky enough to afford a house that was just over the LISA threshold...?

Many thanks for your help!

Albermarle

Yes this is a known issue.
In theory should be no problem to do what you want to do but in practice it seems difficult .
There are not many S&S LISA providers but there are more than BMO.
AJ Bell & Nutmeg are two that come to mind.

eskbanker

This subject comes up from time to time but always seems to conclude that there aren't any available options for transferring into new S&S LISAs after 40:

https://forums.moneysavingexpert.com/discussion/6290953/lisa-after-40/p1

https://forums.moneysavingexpert.com/discussion/6251422/lisa-transfers-over-age-40/p1

wear_galoshes

Thanks for the links - for some reason my searches didn't find those threads!

I don't know how many other people are in my position, but I have essentially been 'mis-sold' a government house-buying incentive - because I was under the impression that the only reason that I should have to lose out was if I desperately needed the money back in the mean-time, thereby losing the 6.25%. Now I have bought a house over threshold - but when taking it out this never looked possible as I was intending to buy 'in the next few years' and I was looking at houses far below the threshold. Do I have any chance in this area with the Financial Ombudsman perhaps?

eskbanker

wear_galoshes said:

I don't know how many other people are in my position, but I have essentially been 'mis-sold' a government house-buying incentive - because I was under the impression that the only reason that I should have to lose out was if I desperately needed the money back in the mean-time, thereby losing the 6.25%. Now I have bought a house over threshold - but when taking it out this never looked possible as I was intending to buy 'in the next few years' and I was looking at houses far below the threshold. Do I have any chance in this area with the Financial Ombudsman perhaps?

You haven't been mis-sold anything, you chose to sign up for a product that was available for its intended use and still is, and it's always been clear that pre-60 withdrawals (other than for first-time property buys) are subject to 25% penalties.

While I agree that a S&S LISA makes more sense than a cash one for long-term accumulation, that still doesn't mean that the unavailability of over-40 S&S transfer options is anyone's fault, so there isn't a FOS angle, and there's nothing stopping you from leaving the money in the cash one, even though it may not be particularly productive there.

wear_galoshes

But why should I have to face the penalty for actually buying a house? Surely there should be an exit route like you just get your money back (like they have for COVID, but I missed that because we had other things to worry about when actually trying to buy the house...)?

I've now double-checked my previous correspondence, and it was actually AJ Bell who said that 'it is an HMRC regulation' that I cannot open a new LISA to transfer my existing one into - BMO said they just don't accept LISA transfers...

eskbanker

wear_galoshes said:

But why should I have to face the penalty for actually buying a house? Surely there should be an exit route like you just get your money back (like they have for COVID, but I missed that because we had other things to worry about when actually trying to buy the house...)?

The LISA withdrawal penalties were temporarily reduced from 25% to 20% during 2020/21, but not removed altogether.  They've always been a published feature of the product, in that if you don't use the product for your first property purchase, you can either withdraw (accepting penalties) or keep the money in a LISA until you reach 60.

wear_galoshes said:

I've now double-checked my previous correspondence, and it was actually AJ Bell who said that 'it is an HMRC regulation' that I cannot open a new LISA to transfer my existing one into - BMO said they just don't accept LISA transfers...

The government rules are clear, as per https://www.gov.uk/guidance/managing-lifetime-isa-applications-and-accounts#who-can-open-a-lifetime-isa

Individuals who are 40 or older

Individuals who are 40 or older are not eligible to open a Lifetime ISA. They can however open an account to receive:

• a transfer from a Lifetime ISA that the investor opened before they were 40
• a defaulted Lifetime ISA payment
• a returned withdrawal after a failed first time residential purchase

If A J Bell told you something different then you could complain to them, but it wouldn't actually change anything....

wear_galoshes

Yes, the rules were clear - but when I took it out it seemed unimaginable that the first-time purchase I intended to make would exceed the £450k limit (I had even completely forgotten that such a threshold existed until I was trying to sort out final payments for the house, which also caused difficulties!). House prices in the time from opening the LISA to when I needed it continued to skyrocket, but the £450k threshold did not move. I can see why the government want to be seen to be helping people at the lower end of the purchasing bracket - but it seems perverse to be penalised for crossing an arbitrary threshold. 

I have recontacted AJ Bell to see if they will at least explain why they cannot accept the LISA transfer. It is likely that it is indeed a programming 'feature' in the website - but if that is the case perhaps it might be possible for them to do it 'by hand'... we'll see!

masonic

While the Equality Act has an exception for financial services, poorly programmed software that arbitrarily excludes a group of consumers on the basis of their age could be considered both unfair treatment and incompatible with the FCA's fair treatment outcomes, specifically that "Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint".

As such, there may be some value in referring it to the FOS if unsatisfied.

wear_galoshes

I now got a further response from AJ Bell, who had repeated back to me before that it is an HMRC rule that over 40s cannot open an account, and then I sent them the link to the page that eskbanker kindly provided above. This is what they say:

"Unfortunately we are unable to accept applications from customers who are over 40 as we are not able to differentiate between requests for transfers and new LISA accounts. We are currently looking at ways round the issue but at the moment we do not have a timescale for this."

This does sound like simply a software issue - but if they are claiming to be 'currently looking at ways round the issue' then presumably the FOS won't be able to help much either...

Albermarle

wear_galoshes said:

I now got a further response from AJ Bell, who had repeated back to me before that it is an HMRC rule that over 40s cannot open an account, and then I sent them the link to the page that eskbanker kindly provided above. This is what they say:

"Unfortunately we are unable to accept applications from customers who are over 40 as we are not able to differentiate between requests for transfers and new LISA accounts. We are currently looking at ways round the issue but at the moment we do not have a timescale for this."

This does sound like simply a software issue - but if they are claiming to be 'currently looking at ways round the issue' then presumably the FOS won't be able to help much either...

The other issue might be is that there are apparently relatively few people who have a S&S LISA. So providers are not motivated to make possible expensive changes to software/administration procedures for the even smaller number of people wanting to transfer into one over 40.