First-time buyers and the Lifetime ISA
How a Lifetime ISA works on a first purchase, the timing and price limits that catch buyers out, and the savings and pension questions that follow the keys.
How a Lifetime ISA works on a first purchase, the timing and price limits that catch buyers out, and the savings and pension questions that follow the keys.
A Lifetime ISA can be opened by anyone aged 18 to 39 and paid into until age 50. The government adds a bonus to what the saver pays in, up to an annual limit. The money can be used without a charge to buy a first home, after age 60, or if the saver is terminally ill.
Any other withdrawal carries a government withdrawal charge, which can leave the saver with less than they paid in. The rules on limits, the bonus and the charge are set by the government and can change. Check the current position with the provider before relying on any figure.
The account must have been open for at least 12 months before the money can be used for a first home. A buyer who opened theirs recently may find that the date they can use it falls after the date they want to buy.
The provider pays the money to the buyer's conveyancer when the conveyancer requests it. The purchase has to complete within a set period after the funds are released. Ask the buyer early which provider they use, and make sure the conveyancer knows a Lifetime ISA is part of the deposit.
A Lifetime ISA can be used without a charge only for a first home below a set purchase price. A buyer whose purchase price is above the limit can still withdraw the money, but the withdrawal charge applies.
Check the purchase price against the current limit before the buyer makes an offer, and record that you did. A buyer who finds out at the conveyancing stage has fewer options.
Each buyer can use their own Lifetime ISA towards the same purchase, provided each is a first-time buyer. If one buyer has owned a home before, they cannot use theirs for this purchase without a charge.
Confirm each buyer's history before the case goes to a lender.
If two buyers are not married or in a civil partnership, each contributes their own Lifetime ISA and their own savings. How they record their shares in the property is a matter for their conveyancer, and a declaration of trust can set out who put in what.
Buyers may combine a Lifetime ISA with other savings, investments or a gift. Selling investments for a deposit can create a capital gains tax bill if they are held outside an ISA, and the timing of the sale matters if markets move before completion. Which investments to sell, and when, is an investment decision.
Ask early where every part of the deposit is coming from. Record the sources and, where any part involves selling investments, record that you offered an introduction.
A Lifetime ISA that is not used for a home remains a savings account for later life. The buyer can keep paying in until 50 and draw on it from 60.
The buyer will then have a choice about where to save for retirement: a Lifetime ISA, a workplace pension with an employer contribution, or both. Which suits them depends on their tax position, their employer's contributions and their plans. That is pension and investment advice.
A first-time buyer may have no protection beyond any death-in-service benefit from their employer. Their deposit, often years of saving, has gone into the property, so they have less cash to fall back on if they cannot work. Review life cover and income protection with them before completion, within your permissions.
If they buy with a partner they are not married to, explain that the partner would not inherit under the intestacy rules, and that a will is a matter for a solicitor.
A first purchase brings a set of financial questions at once: protection for the mortgage, a will, a pension that may have been opted out of to save for the deposit, and savings that have been spent. You advise on the mortgage and protection. The pension and savings questions belong with a planner.
A buyer in their twenties or thirties will need advice for decades. An introduction made at completion starts that relationship while the client's attention is on their finances.
Where the buyer has a workplace pension, ask whether they reduced or stopped contributions to save for the deposit. If they did, note it. The decision to restart, and at what level, belongs with the buyer and a planner.
Raise it at completion, once the purchase is done. Use a fact from the case: "You used your Lifetime ISA for the deposit and paused your pension to save. Deciding what to restart and where is a pension question, which I do not advise on. A planner at Equity & General can help. Would you like me to put you in touch?"
You can explain how it works for the purchase, including the timing and the price limit. Whether to save into one, or into a pension, is investment and pension advice.
The funds go back to the Lifetime ISA, subject to the provider's rules and timescales. Check with the provider at the time.
Yes, if each is a first-time buyer and the purchase meets the conditions.
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