Can I use a Lifetime ISA to buy my first residential home, if I have non-residential investments?

Veronian

Hi all,

I found out about LISAs recently and would like to open one to help me save up for a home. However, I want to invest in real estate (buy-to-let, etc) in the near future, so I am not sure if I investing in non-residential properties will exclude me from counting as a first time buyer for when I want to buy my first residential home (where I actually want to live)? Can anyone confirm to me whether it will or not?

Thanks in advance  

eskbanker

The first-time buyer provisions applicable to penalty-free LISA withdrawals relate to not having owned a residential property before, so if you've owned non-residential property then you're still able to use the LISA money without penalty, although your reference to 'buy to let' would normally imply residential property, i.e. if you own part or all of "a building that is used or suitable for use as a dwelling" then that's a residential property even though you don't live there yourself?

The detailed definitions are all in the legislation:

https://www.legislation.gov.uk/uksi/1998/1870/schedule/paragraph/7

Veronian

Thank you for this. So I have a further question/clarification based on the information in the link you sent.

...

So in the link, looking at the definitions, I get the following:

“first-time buyer” means an account investor who is not, and never has been, a residential property owner;

“residential property owner” means an individual who owns as sole or joint owner an interest in residential property (including a legal interest in land acquired under the terms of a regulated home purchase plan or a shared ownership arrangement) which is—

(a) in England or Wales—

• (i) freehold;
• (ii) leasehold, where the lease was originally granted for a term certain exceeding 21 years; or
• (iii) commonhold;

“residential property” means a legal interest in land which comprises a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use; and

“a legal interest in land” includes land which will be acquired under the terms of a regulated home purchase plan

“regulated home purchase plan” means a home purchase plan that is a regulated home purchase plan within the meaning of article 63F of the Regulated Activities Order 2001

And finally article 63F of the Regulation Activities Order 2001 says:

“regulated home purchase plan” means an arrangement comprised in one or more instruments or agreements, in relation to which the following conditions are met at the time it is entered into—

(i) the arrangement is one under which a person (the “home purchase provider”) buys a qualifying interest or an undivided share of a qualifying interest in land (other than timeshare accommodation) in the United Kingdom;

(ii) where an undivided share of a qualifying interest in land is bought, the interest is held on trust for the home purchase provider and the individual or trustees mentioned in paragraph (iii) as beneficial tenants in common;

(iii) the arrangement provides for the obligation of an individual or trustees (the “home purchaser”) to buy the interest bought by the home purchase provider over the course of or at the end of a specified period; and

(iv) the home purchaser (if he is an individual) or an individual who is a beneficiary of the trust (if the home purchaser is a trustee), or a related person, is entitled under the arrangement to occupy at least 40% of the land in question as or in connection with a dwelling during that period, AND INTENDS TO DO SO;

...

So, if I'm understanding all of the above correctly, a residential property is one that is possible for a human being to live in basically (used as a dwelling), and a residential property owner means having an interest in residential property which includes a legal interest in land. 

Following through with the definitions of legal interest in land and a regulated home purchase plan, for a purchase to be considered a regulated home purchase plan, it seems to require (among other things) the intention of the home purchaser to occupy at least at least 40% of the land in question. Hence, I would interpret that if I don't intend to occupy the land and home I am buying, then it wouldn't be considered a 'regulated home purchase plan', and therefore not having a 'legal interest in land'? 

However, since being a residential property owner means having an interest in residential property, including a legal interest in land, even if I don't meet the 'legal interest in land' part due to the above reasoning, can I still be considered as a residential property owner if I am buying a property that can be used as a dwelling? Is that the right interpretation?

If so, what if I am only investing in commercial properties such as shops and renting that out, would that still be considered a residential property (since I guess someone can still technically live in it), making me not a first-time buyer for when I want to buy my own home to live in?

Finally, what if I buy my properties through a limited company instead, making the company the owner of the properties, would that be a way around this? I wanted to use a company in the future anyways when I invest in multiple properties, and cause I've read that it gives more advantages, but I can do from the get-go if necessary.  

eskbanker

Veronian said:

However, since being a residential property owner means having an interest in residential property, including a legal interest in land, even if I don't meet the 'legal interest in land' part due to the above reasoning, can I still be considered as a residential property owner if I am buying a property that can be used as a dwelling? Is that the right interpretation?

That would certainly be my understanding, i.e. that the regulated home purchase plan is a subset of the conditions and not a prerequisite for having a legal interest in land.

Veronian said:

If so, what if I am only investing in commercial properties such as shops and renting that out, would that still be considered a residential property (since I guess someone can still technically live in it), making me not a first-time buyer for when I want to buy my own home to live in?

If you own a property in which someone can live, such as a shop with a flat above it, then that would seem to me to fall within the definition of residential property ("a building that is used or suitable for use as a dwelling"), whereas industrial units, etc, wouldn't be in scope.

Veronian said:

Finally, what if I buy my properties through a limited company instead, making the company the owner of the properties, would that be a way around this? I wanted to use a company in the future anyways when I invest in multiple properties, and cause I've read that it gives more advantages, but I can do from the get-go if necessary.  

If the properties were to be owned by a limited company then you don't personally own them, so such purchases wouldn't prevent you from being considered a first time buyer later on.

I'd caveat all of the above with the fact that I'm not a lawyer, and it sounds like you'd need some suitably-qualified professional advice when embarking on your business plan anyway.  My understanding is that financing rental properties via buy-to-let mortgages can be tricky if you don't already have a residential mortgage of your own, but that may just be anecdotal or out of date information....

Veronian

Okay, thanks a lot for everything again. And of course, I will consult a legal professional before making final purchases, for now I am just trying to do whatever research I can on my own but I couldn't find any advice on my question online, so I appreciate you sharing your insight, so thanks a bunch