Guidance

Conveyancers: Lifetime ISA technical guidance

Published 20 March 2018

From 6 April 2018 funds (including any bonus) can be withdrawn from a Lifetime ISA to put towards a first time residential purchase.

This guidance provides further information for conveyancers about a first time residential purchase with a Lifetime ISA.

Joint ownership

A Lifetime ISA investor can buy jointly with others, whether or not they’re also first time purchasers and regardless of how they’re funding the purchase.

There’s no limit in the ISA legislation for the number of individuals who can purchase a single residential property.

If more than one Lifetime ISA investor is jointly purchasing a residential property, each investor must:

• satisfy the conditions of the Lifetime ISA
• tell you the relevant information about the sale

Lifetime ISA investors can purchase a property as a joint owner with a person who already owns the property, but this is also subject to the conditions of the Lifetime ISA being satisfied.

Shared ownership

A Lifetime ISA investor can purchase a shared ownership property subject to the conditions of the Lifetime ISA and the shared ownership scheme being satisfied.

The price limit of £450,000 applies to the full sale price of the property rather than the initial share purchased.

The full sale price is worked out as a multiple of the equity share being purchased, for example a 25% equity share of a property being purchased is £50,000, so the full sale value is £200,000.

Alternatively, the calculation can be based on the price paid for the equity share being purchased plus the net present value of rental payments due over the term of the lease.

Legal interest in land

The purchase must be of a ‘legal interest in land’.

A purchase of a property which doesn’t provide a legal interest in land - such as a houseboat - doesn’t satisfy the Lifetime ISA rules.

The purchase of land for a self-build property would potentially satisfy the rules.

Occupation

When the purchase is complete the Lifetime ISA investor must occupy the property as their only or main residence.

Where the land comprises a partially completed dwelling but, at the time of purchase completion, it’s not yet habitable, the Lifetime ISA investor must intend to occupy it as their only or main residence once construction is completed.

Buy to let

Land or property can’t be purchased as a ‘buy to let’. The withdrawal of funds to purchase land or property to be let by a Lifetime ISA investor will incur a 25% withdrawal charge.

If the investor is a UK Crown employee serving overseas or their spouse or civil partner and can’t undertake immediate occupation on completion, as long as there’s a longer term intention to occupy the property as their only or main residence, the purchase can take place as a ‘buy to let’ until they return to the UK and take up occupation.

Purchase price

The £450,000 maximum purchase price is worked out as the value to be paid:

• under the sale and purchase agreement for the acquisition of interest in the land and doesn’t include the purchase of fixtures or fittings
• to the original seller for the legal interest in the land acquired under a Regulated Home Purchase Plan and doesn’t include purchase of fixtures or fittings
• for the market value of the whole of the land as determined at the time of the acquisition, for an interest in land by a Lifetime ISA investor jointly with a person who previously owned the land
• if the acquisition of a leasehold interest in land under a ‘shared ownership arrangement’:
  • where the value is in accordance with the first bullet point
  • the value of the premium required to be paid under the sale and purchase agreement entered into in connection with the acquisition of that interest, divided by the fraction representing the share of the property to be acquired on completion by the purchaser in return for the premium (however described in the sale and purchase agreement or the lease)

Withdrawal amount for house purchase

There’s no minimum amount which must be withdrawn from a Lifetime ISA for a house purchase and, providing the relevant conditions are met for each withdrawal, there’s no limit to the number of charge-free withdrawals an investor can make for a first time residential purchase. The individual may:

• have more than one Lifetime ISA (either with the same or a different provider)
• need to make several withdrawals between initial deposit and completion of the purchase but all withdrawals must be used to cover the purchase price

If more than one withdrawal is made, the withdrawal process must be followed for each one.

Interaction with Help to Buy ISA

The Lifetime ISA is a new type of ISA, the Help to Buy ISA is a form of cash ISA. A saver can therefore subscribe to both a Help to Buy ISA and a Lifetime ISA in the same year.

Some savers may decide to transfer funds in their Help to Buy ISA to their Lifetime ISA but there’s no requirement to do so.

Investors can save into both accounts but they can only use the government bonus from one of them to buy their first home. An investor who claims the government bonus from a Help to Buy ISA for a first time residential purchase can’t also make a charge-free withdrawal from a Lifetime ISA for a first time residential purchase.

Example

Mr Smith paid into a Help to Buy ISA and a Lifetime ISA. He may:

• transfer the funds in his Help to Buy ISA to his Lifetime ISA and use his Lifetime ISA and associated government bonus towards the purchase of his first home by making a charge-free withdrawal from his Lifetime ISA

• use his Help to Buy ISA funds and associated government bonus towards the purchase of his first home and continue to use his Lifetime ISA to save for the future

• use his Lifetime ISA funds and associated government bonus towards the purchase of his first home and withdraw the funds held in his Help to Buy ISA to put towards the purchase of the first home (or keep them in the ISA for another occasion) without the associated government bonus

• use his Help to Buy ISA funds and associated government bonus towards purchasing his first home and withdraw funds from his Lifetime ISA to put towards the purchase, with the withdrawal subject to a 25% withdrawal charge

Where the Help to Buy ISA is closed on transfer to any other ISA, including a Lifetime ISA, the investor is treated as if he has made a request to close the Help to Buy ISA. If this happens the investor will be provided with either a closing statement or a closing letter.

If a first time purchase subsequently takes place the conveyancer is entitled to apply for a bonus on behalf of their investor:

• within 12 months of the closure date
• on the sums held in the Help to Buy ISA at the date of closure

This is subject to the rule that a government bonus claim can’t be sought on both the Lifetime ISA and the Help to Buy: ISA. It’s not required for the Help to Buy ISA funds to be used towards the purchase, meaning those transferred funds could remain in the Lifetime ISA as savings for later life.