Lifetime ISA - First time buyer Girlfriend query

adsbodey

Hi All,

I'm wondering if someone is able to provide some advice / previous experiences - apologies for the long post, but I'll do my best to explain our current situation and rough future plans...

- I currently personally own a 1 bedroom flat in Poole and have done for the past 5 years.
- My girlfriend has lived here with me for the past 3 of those years and we are looking to hopefully move next year when some of my workplace share schemes pay out.
- My girlfriend has a lifetime ISA which she has been putting the maximum contributions into in order to benefit from the Government additional contributions.

We've been digging a little deeper into buying next year and have just discovered that her lifetime ISA is limited to a property up to the value of £450k and believe that anything over this value is subject to a 25% penalty fee on the entire savings!!??

Realistically, we are probably looking to purchase a house around the value of £475k - £500k and it would be a real shame if we lost a chunk of her savings due to the property value exceeding the £450k limit.

Loosely exploring different options, what would be the legality around:

- Selling my current flat to my girlfriend so that it is then entirely in her name (value of about £185k) meaning that she could draw out the funds from the lifetime ISA and not pay any penalties during the purchase.
- Her then selling my flat to "release" the funds previously invested into the property via the lifetime ISA literally a month or so after selling to her
- Buying the new house together at a value of around £475k - £500k ?

Appreciate any advice / previous experiences / other suggestions around this.

Thanks in advance!

grumiofoundation

Although it is a 25% penalty on the entire amount in the LISA this amount includes the 25% bonus. So overall penalty is 'only' 6.25%.

Rather than your proposal LISA can be used to buy into partners property, so she wouldn't have to buy the whole property from you. So could buy half, taking on half of mortgage.

A couple of flaws in your proposal would seem to me to be :

Firstly based on your proposal she would be breaking the scheme rules anyway - the lifetime ISA bonus is intended for someone buying their first home, not someone buying a flat and selling it immediately to pocket a few thousand from the government. Whether she would get caught though (I would hope so) I don't know.

When would also have to factor in the cost for her to buy (solicitors, mortgage fees etc) versus the LISA bonus how much is  it actually worth?


Even if you are able to sell property to gf (she would have to get sole mortgage) she will find it hard to sell it a month later. Since many mortgage lenders won't lend on a property that has that recently been sold (6 months), which would cut down your pool of potential buyers. 



Do you actually need all of the money in her LISA do you need to buy the next property? If not she can withdraw just some of it to effectively reduce the penalty, leaving some in there which could then be used for retirement (in this case move to a stocks and shares LISA)

Couple of examples if say she has 10,000 in there (8000 + 2000 bonus) she could: 

Withdraw 5500, which with penalty would be 4125 and leave 4500 in LISA.
Withdraw 8000, which with penalty becomes 6000, leaving 2000 in LISA