Guidance

Lifetime ISA withdrawals for a first time residential purchase

Find information for Lifetime ISA managers making withdrawals for a first time residential purchase.

Withdrawals for a first time residential purchase

Investors can make charge-free withdrawals from a Lifetime ISA if the funds are going towards the purchase price of their first residential property in the UK. This includes when the investor makes the purchase:

  • on their own
  • with another first time buyer
  • with an individual who is not a first time buyer

There’s no minimum amount that must be withdrawn from a Lifetime ISA. Investors can make one single or several charge-free withdrawals from a Lifetime ISA for a first time residential purchase if:

  • the purchase price of the residential property is £450,000 or less
  • the withdrawal is less than the purchase price of the residential property
  • the purchase is expected to complete within 90 days of withdrawing funds from a Lifetime ISA
  • the Lifetime ISA investor will live in the property as their main residence
  • the investor will purchase the property with a loan taken as a charge over the property for example a mortgage (excluding a ‘Buy to Let Mortgage’)
  • when making their withdrawal, it’s at least 12 months since the investor made the first payment into the Lifetime ISA

Purchasing a residential property

The investor must purchase a residential property that includes a ‘legal interest in land’.

If the purchase does not include a ‘legal interest in land’, such as a houseboat, or when the investor intends to build a residential property on land they already own, then they must pay a withdrawal charge.

Lifetime ISA investors can also purchase a residential property either:

  • jointly with other purchasers, whether or not the other purchasers are also first time purchasers (there is no limit to the number of individuals who can purchase a single residential property together)
  • as a joint owner with another person who may already own the property

On completion of the purchase, the Lifetime ISA investor must occupy the property as their only or main residence.

It must always be the investor’s intention to occupy their property as their only or main residence when they are able to.

A withdrawal charge will apply when the funds in a Lifetime ISA are used to purchase land or property that the investor will let or use as a holiday home.

When purchasing a partially completed dwelling that is not habitable, the Lifetime ISA investor must intend to occupy it as their only or main residence when construction has finished.

When a Lifetime ISA investor is not a UK resident but is a UK Crown employee serving overseas, or their spouse or civil partner is a UK Crown employee also serving overseas, they can temporarily let their property until they return to the UK and can occupy the property.

Purchase price of a residential property

The purchase price of a property is the amount required to be paid under the sale and purchase agreement made with the seller of the property for the acquisition of a legal interest in land.

When a Lifetime ISA investor acquires a ‘legal interest in land’ under a Regulated Home Purchase Plan, the value required to be paid to the original seller does not include any separate consideration to purchase any fixtures or fittings.

If a Lifetime ISA investor acquires an interest in land jointly with another person who previously owned the land, the purchase price is the market value of the whole of the land at the time of the acquisition.

The purchase price for the acquisition of a leasehold interest in land under a Shared Ownership Arrangement is either the amount paid under the sale and purchase agreement:

  • entered into for the acquisition of a legal interest in land
  • made for with the acquisition of that interest, divided by the fraction representing the share of the property acquired on completion, for example a quarter (25%) share

What the investor needs for their declaration

You must only pay charge-free, full or partial withdrawals for a first time residential purchase directly to an eligible conveyancer on behalf of your investor.

Before making a withdrawal from a Lifetime ISA, the investor must give their purchasing conveyancer all the following information in a declaration:

  • the full or partial withdrawal amount (or aggregated amount if more than one Lifetime ISA)
  • your details including name and address (incl. postcode)
  • the account number(s) of the Lifetime ISA from which the investor will make the withdrawal(s)
  • confirmation that they’re a first time buyer
  • full address and purchase price of the residential property
  • that the investor will only use the withdrawal to finance the purchase price of the property
  • that they’ve not claimed a Help to Buy ISA government bonus for the same residential property purchase
  • the name and address of the seller’s conveyancer
  • that the first time residential purchase meets all the conditions for a charge free withdrawal or, in the case of a purchase of land with a dwelling which is not yet habitable, when that will take place
  • that the information given is true and complete to the best of their knowledge and belief

This investor will need to give this information for each withdrawal from a Lifetime ISA in relation to a first time residential purchase.

When more than one Lifetime ISA investor purchases a single residential property together, each investor must make their own separate investor declaration to give to their conveyancer.

Before allowing a withdrawal from a Lifetime ISA, you must have:

  • full details of the investor’s purchasing conveyancer
  • an instruction to pay the withdrawn amount directly to that conveyancer

A Lifetime ISA investor cannot act as their own purchasing conveyancer.

What you need from an eligible conveyancer

An eligible conveyancer is defined in:

  • England and Wales as a conveyancer within the meaning of rule 217A of the Land Registration Rules 2003

  • Scotland as a solicitor or advocate within the meaning of section 65 of the Solicitors (Scotland) Act 1980, or a ‘conveyancing practitioner’ as defined in section 23 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990

  • Northern Ireland as a person enrolled as a solicitor of the Court of Judicature of Northern Ireland pursuant to the Solicitors (Northern Ireland) Order 1976

The investor must tell their conveyancer to give the following information to you together with the investor’s declaration:

  • they are an eligible conveyancer
  • they have received all the relevant information from the Lifetime ISA investor who has declared that it is true and complete to the best of their knowledge
  • the purchase price of the property
  • the investor will only use the amount withdrawn towards the purchase price of the property
  • that if the purchase does not proceed within 90 days of the date of receipt of funds by the conveyancer from the Lifetime ISA, the conveyancer will return the withdrawn amount in full directly to the Lifetime ISA manager
  • account details for receiving the withdrawn funds
  • the conveyancer’s unique professional body registration number
  • that the information given is true and complete to the best of the conveyancer’s knowledge and belief

The Lifetime ISA investor must ensure that their conveyancer gives this information to their Lifetime ISA manager.

When a property purchase is proceeding towards completion but is not expected to complete within 90 days of withdrawal of the funds, the investor’s conveyancer can ask the Lifetime ISA manager for a 60 day extension followed by a further 30 day extension, if required.

When you receive the conveyancer’s declaration

When you receive the completed declaration from an eligible conveyancer you are not required to take any additional steps to verify that the information given is true and complete.

Within 30 days of the date on which you receive all the information and the declaration, you should pay the withdrawn funds direct to the conveyancer.

You should only prevent a charge-free withdrawal for a first time residential purchase when you have a reason to believe that the information given in the declaration is untrue or incomplete.

Completion of first residential purchase

Conveyancers must tell you within 10 business days of the date that the residential purchase has successfully completed.

You must report the information given by the conveyancer to HMRC using the Application Programming Interface. If you do not receive any information from the conveyancer by the due date that the investor’s house purchase has been successful, you do not need to follow this up.

After the end of the tax year HMRC will ask you for an update on withdrawals made for residential purchases.

What to do if a first time residential purchase fails

If the house purchase fails or does not complete within 90 days (or 150 days or 180 days with the extensions) after the withdrawal from a Lifetime ISA the investor’s conveyancer must:

  • inform you that the purchase has not completed
  • return the whole amount withdrawn in full to you, or give an explanation for any shortfall in the amount repaid
  • confirm the investor’s name and address and the withdrawal Lifetime ISA account number
  • tell you their unique professional body registration number

The amount returned to you must be immediately repaid into the Lifetime ISA account.

If the amount returned to you is less than the amount withdrawn, you must apply a withdrawal charge to any shortfall.

You can pay any interest earned while the conveyancer held the funds directly to the investor. It is not treated as a withdrawal charge as it did not originate from the Lifetime ISA.

You should tell HMRC if, following a failed house purchase, the full amount withdrawn from the investor’s Lifetime ISA is not returned by the due date. HMRC will tell you if there are any more steps that you should take. This could include the application of a withdrawal charge calculated on the funds not returned by the conveyancer.

If the house purchase fails after the withdrawal and closure of a Lifetime ISA, the conveyancer must return the withdrawn amount to the Lifetime ISA manager who held the Lifetime ISA. You must pay the withdrawn amount back into a Lifetime ISA account in the name of the account investor.

The investor can open a new account to accept the amount returned by the conveyancer, even if the investor has also made payments to another Lifetime ISA in the same tax year. This applies whether or not the investor is resident in the UK.

Where the Lifetime ISA account has been transferred since the withdrawal, you must pass the returned amount on to the new Lifetime ISA manager. They will then deposit the return into a Lifetime ISA in the name of the account investor.

Any withdrawn amounts which are not returned to the investor’s Lifetime ISA following a failed house purchase must be treated as a withdrawal and may be subject to a withdrawal charge.

Published 12 March 2020