Lifetime ISA + £460k shared ownership using NPV method – anyone successfully done this?

calvin22580

Hi all,

I’m a first-time buyer trying to use a Lifetime ISA for a shared ownership purchase and getting completely different answers from providers, so I’m hoping someone here has real-world experience.

My situation:

• New-build shared ownership house in Cambridgeshire

• Full open-market value: £460,000

• I’m buying a 25% share (premium £115,000)

• Rent: 2.75% p.a. on the unsold 75%

• Lease term: 990 years

• I’m a first-time buyer, and this will be my main residence

• I want to use my LISA towards the deposit

The standard rule is that the property must be £450,000 or less. However, HMRC’s conveyancer guidance for Lifetime ISAs has a Shared ownership section which seems to allow a different way of working out the “full sale price” for the £450k test.

If you go to the gov.uk site and search for:

Conveyancers: Lifetime ISA technical guidance

and then scroll to the “Shared ownership” heading, you’ll see the bit I mean. It says that for shared ownership the full sale price can be calculated either by multiplying up the equity share or based on:

the price paid for the equity share being purchased plus the net present value of the rental payments due over the term of the lease.

Using that equity+NPV method (with the usual 3.5% discount rate), the full sale price in my case comes out well under £450,000, even though the open-market value is £460,000.

Provider responses so far:

• Some providers (e.g. Hargreaves Lansdown, Tembo) have told me they will only look at the headline full market value and treat anything over £450k as ineligible, regardless of any NPV calculation. They say their reporting to HMRC only allows a single “property price” figure and that it has to be the full value.

• One provider (Paragon Bank) has replied in writing that they can follow the HMRC shared ownership guidance and will accept a calculation of the full sale price based on the price paid for the equity share plus the net present value of the rent over the lease term, and that they are happy for my conveyancer to enter this calculated figure (as long as it’s <£450k) as the “property value/purchase price” on their LISA declaration forms.

So I now have:

• One provider explicitly willing to use the NPV-based full sale price;

• Several others explicitly refusing and insisting on the £460k headline value.

My questions:

1. Has anyone here successfully used a Lifetime ISA on a shared ownership property with a full market value above £450k, relying on that equity+NPV method (especially with Paragon)?

2. Are there any known pitfalls or risks with doing this – e.g. HMRC later rejecting the purchase or clawing back the bonus if they disagree with the calculation?

3. Does anyone know how HMRC actually expects ISA managers to report the “purchase price” in these shared ownership NPV cases – is it meant to be the open-market value, or can it genuinely be the NPV-based full sale price from the conveyancer guidance?

I’ve also emailed HMRC’s savings/ISA team for clarification, but I’d really value any practical experiences from people who’ve actually gone through this in real life.

Thanks in advance for any insights

calvin22580

Hi all,

I’m a first-time buyer trying to use a Lifetime ISA for a shared ownership purchase and getting completely different answers from providers, so I’m hoping someone here has real-world experience.

My situation:

• New-build shared ownership house in Cambridgeshire

• Full open-market value: £460,000

• I’m buying a 25% share (premium £115,000)

• Rent: 2.75% p.a. on the unsold 75%

• Lease term: 990 years

• I’m a first-time buyer, and this will be my main residence

• I want to use my LISA towards the deposit

The standard rule is that the property must be £450,000 or less. However, HMRC’s conveyancer guidance for Lifetime ISAs has a Shared ownership section which seems to allow a different way of working out the “full sale price” for the £450k test.

If you go to the gov.uk site and search for:

Conveyancers: Lifetime ISA technical guidance

and then scroll to the “Shared ownership” heading, you’ll see the bit I mean. It says that for shared ownership the full sale price can be calculated either by multiplying up the equity share or based on:

the price paid for the equity share being purchased plus the net present value of the rental payments due over the term of the lease.

Using that equity+NPV method (with the usual 3.5% discount rate), the full sale price in my case comes out well under £450,000, even though the open-market value is £460,000.

Provider responses so far:

• Some providers (e.g. Hargreaves Lansdown, Tembo) have told me they will only look at the headline full market value and treat anything over £450k as ineligible, regardless of any NPV calculation. They say their reporting to HMRC only allows a single “property price” figure and that it has to be the full value.

• One provider (Paragon Bank) has replied in writing that they can follow the HMRC shared ownership guidance and will accept a calculation of the full sale price based on the price paid for the equity share plus the net present value of the rent over the lease term, and that they are happy for my conveyancer to enter this calculated figure (as long as it’s <£450k) as the “property value/purchase price” on their LISA declaration forms.

So I now have:

• One provider explicitly willing to use the NPV-based full sale price;

• Several others explicitly refusing and insisting on the £460k headline value.

My questions:

1. Has anyone here successfully used a Lifetime ISA on a shared ownership property with a full market value above £450k, relying on that equity+NPV method (especially with Paragon)?

2. Are there any known pitfalls or risks with doing this – e.g. HMRC later rejecting the purchase or clawing back the bonus if they disagree with the calculation?

3. Does anyone know how HMRC actually expects ISA managers to report the “purchase price” in these shared ownership NPV cases – is it meant to be the open-market value, or can it genuinely be the NPV-based full sale price from the conveyancer guidance?

I’ve also emailed HMRC’s savings/ISA team for clarification, but I’d really value any practical experiences from people who’ve actually gone through this in real life.

Thanks in advance for any insights

masonic

Someone posted about this a couple of days ago. If you have a provider willing to accept this argument, and a strong argument for HMRC as to why this is acceptable, then why not give it a go. Nobody can give the reassurance that HMRC will never challenge it, but I rather suspect they have other priorities, and there is no clear breach of the rules that I can see. It is for the LISA provider and conveyancer to judge whether or not the rules have been met.

atypical

You've got unhelpful statements from Lifetime ISA providers.

The only number the Lifetime ISA provider will see is the purchase price as written on the conveyancer declaration form (google "Lifetime ISA – model conveyancer declaration"). The ISA provider won't even know what the headline value is.

You just need a conveyancer who is willing to use the NPV approach for the purchase price. They (and you) have full cover to use this approach given it's in HMRC technical guidance (and the underlying legislation explicitly refers to two valuation approach in ISA Regulations 1998 Schedule, Paragraph 7, 'purchase price' definition (d)).

The reason this valuation approach is legitimate is because you are effectively getting a subsidy / discount on the share you are not acquiring as the rent is below market levels.

Note that given the shared ownership rent is linked to inflation you should include this in the NPV.  Rules for SDLT (which the conveyancer should know) state you inflate the rent for the first 5 years only and then fix it at the year 5 level for the remainder of the lease.  Conveyancer’s will normally take the last reported CPI figure as the inflation level (+1%) for the first 5 years.  You should still be under the £450k limit with this approach.

SDLT_Geek

calvin22580 said:

Hi all,

I’m a first-time buyer trying to use a Lifetime ISA for a shared ownership purchase and getting completely different answers from providers, so I’m hoping someone here has real-world experience.

My situation:

• New-build shared ownership house in Cambridgeshire

• Full open-market value: £460,000

• I’m buying a 25% share (premium £115,000)

• Rent: 2.75% p.a. on the unsold 75%

• Lease term: 990 years

• I’m a first-time buyer, and this will be my main residence

• I want to use my LISA towards the deposit

The standard rule is that the property must be £450,000 or less. However, HMRC’s conveyancer guidance for Lifetime ISAs has a Shared ownership section which seems to allow a different way of working out the “full sale price” for the £450k test.

If you go to the gov.uk site and search for:

Conveyancers: Lifetime ISA technical guidance

and then scroll to the “Shared ownership” heading, you’ll see the bit I mean. It says that for shared ownership the full sale price can be calculated either by multiplying up the equity share or based on:

the price paid for the equity share being purchased plus the net present value of the rental payments due over the term of the lease.

Using that equity+NPV method (with the usual 3.5% discount rate), the full sale price in my case comes out well under £450,000, even though the open-market value is £460,000.

Provider responses so far:

• Some providers (e.g. Hargreaves Lansdown, Tembo) have told me they will only look at the headline full market value and treat anything over £450k as ineligible, regardless of any NPV calculation. They say their reporting to HMRC only allows a single “property price” figure and that it has to be the full value.

• One provider (Paragon Bank) has replied in writing that they can follow the HMRC shared ownership guidance and will accept a calculation of the full sale price based on the price paid for the equity share plus the net present value of the rent over the lease term, and that they are happy for my conveyancer to enter this calculated figure (as long as it’s <£450k) as the “property value/purchase price” on their LISA declaration forms.

So I now have:

• One provider explicitly willing to use the NPV-based full sale price;

• Several others explicitly refusing and insisting on the £460k headline value.

My questions:

1. Has anyone here successfully used a Lifetime ISA on a shared ownership property with a full market value above £450k, relying on that equity+NPV method (especially with Paragon)?

2. Are there any known pitfalls or risks with doing this – e.g. HMRC later rejecting the purchase or clawing back the bonus if they disagree with the calculation?

3. Does anyone know how HMRC actually expects ISA managers to report the “purchase price” in these shared ownership NPV cases – is it meant to be the open-market value, or can it genuinely be the NPV-based full sale price from the conveyancer guidance?

I’ve also emailed HMRC’s savings/ISA team for clarification, but I’d really value any practical experiences from people who’ve actually gone through this in real life.

Thanks in advance for any insights

I do not have the practical experience you are looking for, but am quite good at finding the rules themselves, as well as the guidance. 

To start with the guidance, yes, the “conveyancer guidance” you refer to, which is here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/691773/conveyancer__1___5_.pdf does indeed have the meaning you suggest, giving a choice of how to assess the “purchase price” in your case.  Here is what it says under the heading “Shared Ownership”: 

“A Lifetime ISA investor may purchase a shared ownership property subject to the conditions of the Lifetime ISA and the relevant shared ownership scheme being satisfied. The price cap of £450,000 applies to the full sale price of the property rather than just the share purchased initially. The full sale price is calculated as a multiple of the equity share being purchased i.e. if a 25% equity share of a property is being purchased for £50,000, the full sale value is £200,000. Alternatively, the calculation can be based on the price paid for the equity share being purchased plus the net present value of rental payments due over the term of the lease.” 

The relevant regulations are the Individual Savings Account Regulations 1998 (SI 1998/1870)  https://www.legislation.gov.uk/uksi/1998/1870/contents The Schedule deals with conditions for the Lifetime ISA, with para 6(3) saying the purchase price must not exceed £450,000.  “Purchase price is defined in para 7.  It takes a bit of interpretation.  Here are the key bits: 

"“purchase price” means— 

(a) in connection with the acquisition of any legal interest in land in circumstances other than those described in paragraph (b), (c) or (d), the value of the consideration required to be paid, and which is paid, by the purchaser under the sale and purchase agreement entered into in connection with the acquisition of that interest in land; or 

(b) ……; or 

(c) ……..; or 

(d) in connection with the acquisition of a leasehold legal interest in land under a shared ownership arrangement—

(i) the value determined in accordance with paragraph (a), or

(ii) the value of the premium required to be paid, and which is paid, by the purchaser under the sale and purchase agreement entered into in connection with the acquisition of that interest, divided by the fraction representing the share of the property to be acquired on completion by the purchaser in return for the premium (howsoever described in the sale and purchase agreement or the lease);"

So for a shared ownership purchase like yours, the regulations do indeed give a choice at para (d).  It is between: 

(d)(i)  The “value of the consideration required to be paid” under the contract.  This will be the premium for the actual share plus the present value of the stream of rent.  There is nothing to say that the 3.5% discount rate used for stamp duty land tax purposes should apply, but that would seem to be a reasonable rate to use, especially as there is an online calculator (provided for SDLT purposes) which conveyancers are used to using and given that it is the conveyancer who is to report the figure to the ISA manager. 

(d)(ii)  The full market value of 100% (worked out from the premium paid for a share).

You ask about how ISA managers are expected to report the “purchase price”.  The way it works is that the purchase price is reported to them.  Para 8(2) of the Schedule to the regulations sets out the information the conveyancer is to provide to the account investor’s account manager (see para 6(13)).  That includes at 8(2)(c) the purchase price. 

So in your case you should tell your conveyancer the “purchase price” on your chosen basis (see para 8(1)(e)) and check that your conveyancer is happy to pass on that same purchase price to the ISA manager under para 8(2)(c).  I see that under para 6(14) where the ISA account manager has received the information, they must transfer the amount of the withdrawal unless they have reason to believe that the information and declarations are not correct.

MargeryKempe

Oh that’s interesting so there are rules about using a LISA for shared ownership specifically. We are using 2 x help to buy isas . We are both 50 and it’s our first house! There’s a lot of negativity about shared ownership housing on this forum but we had no choice in our area if we wanted to build up some equity. The full ownership houses in our area were total wrecks. I personally have been renting since I was 23 years old. Probably similar for my partner.

Marg

Grumpy_chap

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https://forums.moneysavingexpert.com/discussion/6644304/lifetime-isa-460k-shared-ownership-using-npv-method-anyone-successfully-done-this#latest

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