The basic idea of the Lifetime Isa (Lisa) is relatively simple. UK residents can open a Lisa before their 40th birthday and contribute up to £4,000 a tax year until the day before they reach the age of 50. Each contribution receives a 25 per cent government bonus , so for every £4,000 you contribute you will end up with £5,000 in your Lisa.
Money can be withdrawn tax-free in 2017-18, if diagnosed with a terminal illness, after reaching the age of 60, or for a qualifying first-time residential property purchase. In all other circumstances, there is a 25 per cent government withdrawal charge, so every £5,000 withdrawn incurs a £1,250 charge.
A qualifying (first-time) residential purchase is when a first-time buyer makes a withdrawal from a Lisa that has been open for at least 12 months to purchase, using a mortgage, a UK residential property costing up to £450,000 to live in as their (only or) main residence.
Now for the longer version.
First-time buyer
The Lisa investor making the withdrawal must never have had – solely or jointly – an interest in residential property. This is any legal interest in land that comprises a building that is either suitable for living in or is in the process of being constructed or made habitable.
There is no distinction between owning a property due to a purchase, a gift or an inheritance: they all count as ownership. Nor does it matter where in the world this property is situated (see Box 1). It must be an interest in land, so therefore a houseboat is not residential property. A legal interest in land includes land that will be acquired under a regulated home purchase plan.
Purchase price
The property must be a residential property (as defined above) situated in the UK with a purchase price that does not exceed £450,000.
In most cases, the purchase price is the consideration to be paid under the sale and purchase agreement. It does not include any amount paid for fixtures and fittings.
For a regulated home purchase plan the purchase price is the total purchase price of the property, and for a shared ownership arrangement it is the price of the whole property, not the amount paid for the proportion purchased.
If an investor becomes a joint owner by purchasing a part interest from the current owner then it is the purchase price of the total property that is taken into consideration.
It is not possible for two Lisa investors to jointly purchase a property worth up to £900,000. The total Lisa withdrawals for the property purchase cannot exceed the purchase price.
Property occupation
After completion, the Lisa investor must live in the house as their only or main residence. If the property is in the process of being built or adapted for a dwelling they must intend it to be their only or main residence and occupy it as soon as it is suitable for them to do so.
If the Lisa investor is an overseas crown servant, for example a member of the armed forces who cannot occupy the property, they must intend to do so in the future.
The mortgage
The house must be purchased using a legal mortgage or the Scottish or Northern Irish equivalent. It cannot be a cash purchase. The mortgage cannot be a buy-to-let mortgage unless the Lisa investor is an overseas crown servant (as described above). A regulated home purchase plan can be used instead of a mortgage.
Regulated home purchase plan
These are designed for those who wish to purchase a home without the payment of interest. The home purchase plan provider buys the property. The individual pays a proportion of the purchase price to the firm and takes out a lease agreement with the firm. Each regular payment comprises of a rental payment and a contribution towards the purchase price. Once the original purchase price has been paid the property is transferred to the individual.
Shared ownership arrangement
These are designed for those who cannot afford to purchase a property outright. Instead of purchasing the whole property, the individual use a mortgage to purchase a proportion, which is usually half. They then pay rent on the proportion they do not own.
The 12-month period
The Lisa itself must have been opened for at least 12 months since the date of the first payment. The first payment could be a subscription, a transfer from another type of Isa or a 2017-18 transfer from a Help to Buy Isa. If a Lisa has been transferred to another Lisa then the 12 months will start from the date of the payment to the first Lisa.
Help to Buy Isa
It is not possible to make a withdrawal for a first-time purchase of residential property if you are in the process of claiming a Help to Buy Isa bonus, or have received a Help to Buy Isa bonus that has not been returned.
If during the 2017-18 tax year money is withdrawn from a Lisa there is no government withdrawal charge and no bonus is claimed.
If this applies to a Lisa to which a Help to Buy Isa has been transferred, then it will still be possible for the investor to claim the Help to Buy Isa bonus. The bonus will be based on the closing value of the Help to Buy Isa when it was transferred.
The declarations
The investor will provide a declaration to their conveyancer. As well as including details of their Lisa account and the property to be purchased, they will also have to declare they are not claiming, and have not received, a Help to Buy Isa bonus. Also, they will be complying with all of the other conditions for a qualifying first-time residential purchase.
The conveyancer will then provide a declaration to the Isa manager. This will include evidence that they are an eligible conveyancer, their conveyancer registration number, the purchase price of the property, a declaration that the withdrawal will only be used towards the purchase prices of the residential property, and a declaration that they have received all of the required information from the account investor. The conveyancer
To make a withdrawal, the investor will provide the investor declaration to the conveyancer and the conveyancer will then provide their declaration to the Lisa manager.
Provided the Lisa manager has no reason to think the information and declarations are not true and complete then the withdrawal can be paid to the conveyancer.
The conveyancer will then have to provide further information to the Lisa manager on purchase completion, the purchase failing or the purchase not completing within 90 days.
If the purchase does not complete within 90 days then the full withdrawal amount must be returned to the Lisa unless the conveyancer has obtained an extension from HM Revenue & Customs.
Phil Warner is head of technical at Hargreaves Lansdown