Lifetime ISA - how long does money have to sit there?

KeysMcK

Hi,

I can’t believe I’m typing this, but my partner and I have significantly improved our debt position and we are in a place we might actually be able to buy a house in the foreseeable future.

I have a home buyers ISA with about £1 in it, but I’m thinking of opening a LISA for each of us instead due to the ability to pay in lump sums and the penalties of withdrawing.

Firstly, can I even open a LISA given the fact I paid into (and back out of) a home buyers ISA this year? 

Secondly, I know the LISA pays up to 25% every tax year, but does the money have to sit in for an entire year to get the 25% or could I for example pay £4k in today, another £4k in April, and have a full £2k top up for both years to spend in May 2022. 

Or does the 25% only get added if it’s been in there for an entire tax period? 

Thanks in advance! 

Alexland

For your "home buyers ISA" then I assume this is a Help To Buy ISA which is a type of Cash ISA in which case you would be fine to open and contribute to a Lifetime ISA as it's a different type of ISA and the restriction is that you can only contribute into one of each kind of ISA each tax year up to the relevant product or overall ISA annual contribution limit.

https://www.gov.uk/individual-savings-accounts

The LISA 25% bonus is added into the account a month or two after each contribution (depending on the exact date of the contribution relative to the monthly claim cycle which starts on the 6th of each month and speed of provider's claim process). The solicitor makes the penalty free withdrawal towards a qualifying property purchase after the LISA has been open for at least a whole year so the earliest you could use a new LISA without penalty towards a purchase would be November 2022.

KeysMcK

Ok brilliant thank you for the info,  so if I pay in a lump sum of £4000 this month, and £4000 in April (so next financial year), by Nov 2022 there will be a full £10,000 to be withdrawn by my solicitor? That all makes sense!

Alexland

Yes if you make the 2nd contribution on 6th April (at the start of the new tax year) your account valuation should be up to £10k by late May or maybe early June depending on the provider but then your solicitor will need to wait until the 1 year anniversary of the account a few days into November 2022 before drawing all the money (and any earned interest) towards a qualifying property purchase.

KeysMcK

Theoretically, if I decided to buy a house in May/June, could my solicitor still withdraw my money penalty free but without the bonus, or would my money be trapped?

I’m wondering if this even even worth it given the time constraints. The help to buy scheme ends April 2023, so it would only give me 5 months to find and buy a suitable new build 😬

Sorry for all the Questions, im just kicking myself for not starting sooner!

Alexland

KeysMcK said:

Theoretically, if I decided to buy a house in May/June, could my solicitor still withdraw my money penalty free but without the bonus, or would my money be trapped?

No that would be you withdrawing and paying the penalty which is slightly greater than the bonus. £4000 would become £5000 which would be £3750 after the 25% bonus penalty so a loss of 6.25% against original contribution.
Or you could leave the money in a LISA wrapper (switching to long term S&S investments) until age 60+