Lifetime ISA – What is it and how can you use it to purchase a new home?

28 July 2021

A Lifetime ISA, also known as the Individual Savings Account is an account that allows you to save for your first home or to save for later in life. Lifetime ISAs can hold cash, stocks and shares qualifying investments, or a combination. You can typically apply for a Lifetime ISA through a bank or building society.

The requirements for a Lifetime ISA are that you’re over 18 or under 40. 

As well as being:

  • A resident in the UK or
  • A Crown Servant or
  • The spouse or civil partner of a Crown Servant

So how does it work?

Up to a maximum of £1,000 per year, the government will give you a 25% bonus on the total amount you pay into your Lifetime ISA, not including investment interest or investment growth.  So, for every £4 you save, the government will add £1.

You can save up to £4,000 a year, and can continue to pay into it until you reach 50. The account can stay open after then, but you can’t make any more payments into it. 

As long as you have opened an account before you turn 40, you can pay into a Lifetime ISA up to the day before you turn 50.

Your savings will be kept on a tax-free basis for as long as you keep the money in your Lifetime ISA.

 How can I use it to purchase a home?

You can use your savings to help you buy your first home if all the following apply:

  • the property costs £450,000 or less
  • you buy the property at least 12 months after you make your first payment into the Lifetime ISA
  • you use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them
  • you’re buying with a mortgage

Note: Your Lifetime ISA must be open for at least 12 months before you can withdraw funds from it to buy your first home.

You can use the Lifetime ISA to buy land for a self-build property as long as the purchase meets all the other criteria for property purchase through the scheme.

What if the co-owner of the property has a Lifetime ISA too?

If the co-owner of the property has a Lifetime ISA they can use it towards the purchase of your home provided it is also their first time purchasing a home. The price of the home still mustn’t be more than £450,000.

If they choose to withdraw the funds from their Lifetime ISA if this is not their first time purchasing a home or property, they will be subject to a 25% withdrawal fee.

What if I want to withdraw my funds earlier or for anything other than a house? 

You’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (also known as making an unauthorised withdrawal) other than purchasing a home, being under 60 or  being terminally ill, with less than 12 months to live. This recovers the government bonus you received on your original savings.

A Lifetime ISA is one of the schemes designed to assist you on your journey of home ownership. If you have any more questions do not hesitate to get in touch. Our team at Wheatcroft Homes are committed to delivering excellent levels of service that exceed our customer’s expectations, with our Managing Director Catherine personally dealing with 

your first inquiry right until she has handed over the keys to your new home.