Lifetime ISAs for first time buyers – what you need to know

 In Ashley Sowerby, Residential property

You may have heard a lot about Help to Buy ISAs but have you heard about Lifetime ISAs?

Here are a few of the facts:

What are Lifetime ISAs

Lifetime ISAs are an affordability scheme available to first time buyers. It is a longer-term tax-free savings account that gives you a government bonus towards the purchase of your first home. They were available from April 2017 and need to be open for at least 12 months before you can withdraw funds and claim the government bonus. The ISAs allow you to save up to £4,000 per year and form part of your overall annual ISA limit. Lump sums can also be paid into the account as well as making monthly payments.

Do you qualify?

You must be a first time buyer to use the Lifetime ISAs towards your first home. A first time buyer is someone who does not own or has never owned a property in the UK or the rest of the world.  This includes properties which have been inherited.

The property you purchase must be in the UK and be used as your main residence, be under the price of £450,000 and purchased with a mortgage.

If you are purchasing with another person you can each have separate ISAs and both can be used to claim the bonus.  If you are purchasing a property with a non-first time buyer then only the first time buyer would be able to use an ISA. You also have to be between the ages of 18-39.

Bonus and how to get it

The ISAs need to be open for at least 12 months so the first ISAs can be used from April 2018.  The bonus earned is 25% bonus each tax year on the amount which you have put in and this will be added to your account after the first year, then monthly assuming you have contributed that month.

Once you are in a position to buy a property your ISA Manager will transfer the funds which you have saved together with the bonus to your solicitor direct. This ensures that the money is being used for the purchase of a property.

If you close your ISA and don’t use it towards the purchase of a property and transfer it into one of your own accounts, then you will have to pay a 25% penalty on the drawdown, equivalent to a loss of just over 6%.

Help to Buy ISAs v Lifetime ISAs

Lifetime ISAs are better for long term planning and if you are purchasing a property for under £450,000 (if the property is more than this amount then the penalty will be payable), as the amount of bonus and amount that can be saved is greater.

If you would like to purchase within the next 12 months or are unsure as to whether you want to purchase at all, Help to Buy ISAs are more favourable as the bonus can be claimed after £1,600 has been saved and there is no penalty for closing the account if you decide not to purchase.

If you have any questions or require legal help or advice, please contact the Property department at Ridley & Hall on 0800 8 60 62 65.

Ashley Sowerby

Ashley Sowerby – Property Solicitor

Ashley Sowerby is a property solicitor at Ridley & Hall. She has a wealth of knowledge and expertise in residential property and a wide portfolio of clients based in Yorkshire and London.

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