LISA rules change

User_04535

Hi,

Has there been any recent rule changes for LISAs or my original understanding was wrong...

Been told by both solicitor and legal ombudsman that them using my leftover LISA money to go towards solicitor fees is ok and now considered best practice to do. This is without incurring the 25% penalty.

My previous understanding was LISA had to be ringfenced by solicitors for only the house deposit and can't go towards any of the extra cost of fees.

Thanks

Albermarle

According to the LISA provider 'Moneybox' their advice to solicitors is in this link.

What can Lifetime ISA funds be used for? | Moneybox

eskbanker

The legislation hasn't changed and still specifies that "the [penalty-free] withdrawal must only be used by the account investor towards defraying the purchase price for the acquisition by the account investor as a first-time buyer of a residential property".

https://www.legislation.gov.uk/uksi/1998/1870/schedule/paragraph/6

Likewise the HMRC guidance documentation continues to reiterate this:

Investors can make charge-free withdrawals from a Lifetime ISA if the funds are going towards the purchase price of their first residential property in the UK

https://www.gov.uk/guidance/lifetime-isa-withdrawals-for-a-first-time-residential-purchase

Obviously solicitors and legal ombudsman should be better informed than lay people but I'd share your suspicion, so ask them for clear verifiable sources!

se2020

It is the solicitor who makes the declaration as to what the funds are being used for.

In reality, the funds come from the lisa and go into your solicitors bank account along with the funds you send them directly and the funds from your mortgage provider. They then transfer funds to the buyers solicitor.

Once the funds reach your solicitors account there is no way to tell what money is actually used for what purpose so its pretty irrelevant.

If you happened to withdraw more from the lisa than the total deposit amount paid towards the house this could potentially be picked up on. However, as it's the solicitors responsibility to allocate the funds correctly, they would be liable for any repayment if it left you out of pocket.

User_04535

Thanks for the replies, it does make me more confident in challenging the Ombudsmans position. They are stating that solicitor firms are entitled to use any monies on account to settle fees, which in this case the solicitor explicitly stated it is my LISA monies they used to settle their fees. The solicitor defence which ombudsman is agreeing with is that the government bonus part of the LISA went towards the purchase price and they can then do what they like with the rest of the LISA. I will try to update when they provide further information as seems to be playing with the rules a bit.

masonic

All of the LISA funds should go towards the purchase price. Are you saying the value withdrawn from the LISA was greater than the deposit you put towards the property? If not, then some money from elsewhere would have been used and that can be treated as covering the fees.

It sounds like they are getting confused with the HTB ISA scheme where only the bonus needs to be used towards the purchase price and you don't even need to use the closing balance for anything to do with the property.

User_04535

They have stated they made the decision to use the surplas towards fees as they had no specific instruction from me not to, and that "Returning a small portion of these funds back to the Lisa company, would result in additional cost, administration, and potential delay, which we do not believe would be in your best interests."

eskbanker

You obviously have more context than the rest of us regarding why this question is important and why the ombudsman is involved, but I'd have surmised that it only ought to be relevant if you're being pursued by HMRC and are seeking to hold the solicitor liable for whatever cost arises from that - is that the case or are you just trying to pre-emptively protect yourself from that?

User_04535

Part pre-emption as HMRC may send something through if they do checks, but also the guidance is a bit vague on it all, and if it was the case lisa can be used on fees now as best practice then that is good knowledge for other potential first time buyers

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82088311#Comment_82088311

Which guidance are you referring to? There doesn't seem to be much scope for ambiguity in the extracts shared earlier…

User_04535

https://forums.moneysavingexpert.com/discussion/comment/82088318#Comment_82088318

From trying to find information before posting to this forum it was vague to find an exact source. I did think it was just the purchase price which the links show but I struggled to find the exact wording directly from the government. It just makes the solicitor and ombudsman decision to say using surplas for fees is now best practice all the more confusing.