ISAsApr 26 2021

How to make the Lifetime Isa work

  • Describe some of the fundamentals of Lifetimes Isas
  • Explain some of the restrictions of the Lifetime Isa
  • Identify the impliuations of the 20 per cent withdrawal charge
  • Describe some of the fundamentals of Lifetimes Isas
  • Explain some of the restrictions of the Lifetime Isa
  • Identify the impliuations of the 20 per cent withdrawal charge
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How to make the Lifetime Isa work
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Although it is only possible to open a Lisa before turning 40, once open payments can continue until the day before the 50th birthday. This means if someone opened a Lisa at age 18 and paid in the maximum of £4,000 each tax year until they turned 50, they could claim a grand total of £33,000 in government bonuses (unless their birthday is 6 April).

Those approaching their 40th birthday who are unsure whether they want to open a Lisa may want to consider opening an account with a minimum subscription just to keep the option open to pay in in the next ten years.

What can it be used for? 

Lisas have been designed with two specific, but unrelated, purposes in mind. One is to help fund a first-time property purchase, the other is as a quasi-pension to provide income in retirement.  If withdrawals are made for other purposes in the account holder’s lifetime Lisa  then a penalty applies. The only exception is for those with less than 12 months to live. 

House purchase 

There are a few criteria for using Lisas for property purchase, so care is needed to avoid tripping up.

First, the Lisa needs to have been funded for at least twelve months before a charge-free withdrawal can be made.

It is important that account holders are aware of this if they are planning a property purchase in the near-term. 

If you have clients under 40, who are potentially looking to buy on a first-time basis, then they could consider opening a Lisa with a minimum deposit to start the clock ticking, even if they only put in the balance to £4,000 once they have found a property to buy. 

In terms of the property itself, it must be in the UK with a purchase price of £450,000 or less. Unlike with help-to-buy Isa there is no differential between London and the rest of the country.

There must be a mortgage being used to purchase the property and the Lisa holder must be intending to live in the property on completion. The only exception to this last rule is for crown employees working abroad, who can purchase UK property to let on condition that they use it to live in when they return to the UK. 

The Lisa holder cannot have owned property previously – be that in the UK or anywhere else in the world. This includes property they have inherited and is regardless of how small a share of the property they may have had. 

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