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How to use a lifetime ISA to buy your first home

Written by Ines Pena, Digital Content Executive

Lifetime ISAs give you a 25% government bonus on top of your savings to help you buy your first home or save for retirement.

This makes it a great option for those with clear savings goals. However, buying a house can be a complicated and lengthy process, so how does your lifetime ISA fit in?

The process of withdrawing the money from your lifetime ISA account can feel complicated, so let us help break it down for you.

What is a lifetime ISA?

A lifetime ISA (also known as a LISA) is a savings account made to help you either buy your first home or put money aside for retirement. The government will give you a 25% bonus on top of your lifetime ISA savings to help you reach your goal.

You can open a lifetime ISA if you’re a UK resident aged between 18 and 39 You can pay up to £4,000 each tax year into a lifetime ISA until the age of 50.

While you can take money out at any time, if you make a withdrawal for anything other than to buy your first home (and you’re aged under 60), the government will charge you a withdrawal fee.

Can I use a lifetime ISA to buy a house?

Yes, a lifetime ISA can be used to buy your first home, whether that’s a flat or a house. The conditions are:

  • The property must cost £450,000 or less
  • You must have money in your lifetime ISA for at least 12 months before you buy the property
  • A conveyancer/solicitor must be used to act for you in the purchase (the ISA provider will pay the funds directly to them)
  • You must buy the property with a mortgage
  • You must not have owned a property before
  • The purchase must include ‘legal interest in land’, so a houseboat for example wouldn’t count

If any of the above conditions aren’t met, you will need to pay the government a withdrawal charge.

Do I have to use my lifetime ISA to buy a property?

No, you can also use a lifetime ISA to save for life after 60.

Technically, you can take money out of your lifetime ISA at any time but if you’re under 60 and the money isn’t going towards a house deposit, this will count as an “unauthorised withdrawal” and will be subject to a withdrawal charge. This is 25% of everything you take out which works out as more than the bonus the government gave you.

Once you’ve turned 60, you can take money out at any time for anything you like and there will be no withdrawal charge or tax to pay.

The exception to this rule is if the account holder is terminally ill, with less than 12 months to live.

Buying a home with a lifetime ISA in four steps

Buying a property can be a long and confusing process, especially if it’s your first time. When it comes to using your lifetime ISA savings to help you buy your first home, there are systems in place to make sure your money goes to the right place.

We’ve split this into four easy to follow steps.

Step 1: Have an offer on a property accepted

The process of withdrawing funds to buy a house can’t begin until you’ve had an offer accepted. Then the process of withdrawing from your lifetime ISA can begin!

Step 2: Hire a conveyancing solicitor

Once your offer has been accepted, you should hire a licensed conveyancer or a conveyancing solicitor and let them know you’ll be using a lifetime ISA to pay some, or all, of the deposit.

A conveyancer is a legal professional who specialises in the process of buying and selling property. Their role is to make sure all legal processes of buying the home go smoothly and that your rights are protected the whole way through.

They’ll also make sure the money in your lifetime ISA comes out of your account at the right time and goes where it should – you don’t need to worry about moving this money and notifying HMRC yourself.

How do I find a conveyancing solicitor?

There are lots of different ways you can find a conveyancing solicitor such as recommendations from family, friends, or estate agents and searching online.

Once you have found a conveyancing solicitor you’d like to use, make sure you check that they’re a member of the Law Society of England and Wales, Law Society of Scotland, and a member of the Law Society’s Conveyancing Quality Scheme. They must also be members of the Council for Licenced Conveyancers.

Step 3: Withdrawing your lifetime ISA funds

Once you’ve had your offer accepted, there will be some paperwork to do.

They will check everything looks right and send both these forms to your lifetime ISA provider on your behalf. Your provider will get in touch with you to make sure everything is correct, before then checking with HMRC if your conveyancer is properly registered and if your account qualifies.

The money doesn’t come out of your account until you’re ready to complete on the purchase so, as long as you’re not at the allowance limit, you can keep saving and keep earning more bonus! The government bonus is paid at the end of each month based on how much you saved that month.

In the meantime, your solicitor will carry out searches and get all the paperwork ready for you buying the property.

Step 4: Your lifetime ISA funds are sent to your solicitor!

Your lifetime ISA provider will transfer your conveyancer the amount you need from your lifetime ISA when all the paperwork is ready and you’re ready to complete your home purchase. It can take up to three working days for the money to reach them.

At this point, you can keep paying money into your lifetime ISA at this point but only if you plan to leave this money invested until you turn 60 at least. You won’t be able to use it to buy another property as you’ll no longer be a first-time buyer.

Your conveyancer won’t ask for the money until you and the seller have agreed a completion date as they must finalise the sale within 90 days of receiving your lifetime ISA money.

If there are unexpected delays and it takes longer than 90 days, your provider will contact your solicitor to find out if an extension is needed. If your conveyancer says they need more time, your provider will ask for an extension from HMRC. The first extension will be 60 days, with a second possible extension of 30 days.

Once this is complete, your conveyancer will let your lifetime ISA provider know the purchase went through and you’re now a homeowner. Your provider will mark the process as complete on their system and notify HMRC.

Common questions about buying a home with a lifetime ISA

Even though you’ve used your lifetime ISA to buy your first home, your account isn’t closed, despite it now being empty. You can keep putting money into it until the age of 50 to save up for your retirement – and you’ll still get that 25% government bonus on everything you put in.

Invest in your future with a OneFamily lifetime ISA

Got £25 in your current account? If you put it in a lifetime ISA now you'll be taking your first big step towards owning your own home.

Not yet sure if now’s the time? Sign up to receive our lifetime ISA guide by email using the form on this page to find out more about this savings shortcut.

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