FINANCE
mortgage, not a cash buyer or getting a private loan from relatives. Multiple accounts: If you have savings in a Help to Buy: ISA as well as in a Lifetime ISA, you can only claim the Government bonus on one of them. It is usually preferable to claim the bonus on the LISA, as you can withdraw money from a Help to Buy: ISA without a penalty (only the loss of the bonus). CONVEYANCING ISSUES Professionals: You must use a conveyancer or solicitor to act for you in the property purchase as the LISA provider will pay the funds directly to them. If you simply close your account or withdraw the money yourself you will pay the 25% penalty. Deposit: LISA funds can legally be used for your exchange deposit or your mortgage deposit (unlike Help to Buy: ISA which could only be used for the mortgage deposit). Timeframes can be a problem, however. Many developers require buyers to move from reservation to exchange in a few weeks, and it can take 30 days for all of your bonus to be available to withdraw from a LISA. Completion: Once you have handed over LISA funds to a seller or developer as an exchange deposit, completion must follow within 90 days (or 180 days with an official extension). If completion doesn’t occur within 180 days, or the entire purchase falls through after the exchange deposit has been paid, the full amount must be returned to the LISA account or the 25% penalty would be incurred. Because of this financial risk, some conveyancers have a policy of not accepting LISA funds for exchange deposits, especially off-plan, although they will attempt to negotiate a lower exchange deposit that can be paid from other funds. Be sure to check this before appointing your legal team. What does the future hold for the LISA? While it’s likely that changes will not affect current LISA savers, Chair of the Treasury Committee, Dame Meg Hillier, suggested reforms are likely, “The Committee is firmly behind the objectives of the Lifetime ISA, which are to help those who need it on to the property ladder and to help people save for retirement from an early age. The question is whether the Lifetime ISA is the best way to spend billions of pounds over several years to achieve those goals. We know that the Government is looking at ISA reform imminently, which means this is the perfect time to assess if this is the best way to help the people who need it.”
penalty-free at 60 (or if you are diagnosed with a terminal illness), although interest will continue to accrue. Location: If you move abroad for work you are not allowed to open, or pay into an existing LISA, unless you are a “crown servant” such as a diplomat or member of the Armed Forces. The account will continue to accrue interest and you can pay in again when you return. Status: You don’t have to be a first time buyer to open a LISA as it can also be used for retirement savings. However, a change in status can be expensive if you were intending to use it to fund your first home. For example, if you inherit a share of a residential property anywhere in the world, or buy a holiday home or a buy-to-let, you cease to be a first time buyer and are left with two options: withdraw the money with the hefty Government penalty, or leave it in place until you are 60. Joint purchases: LISAs are individual. If you are buying jointly and your partner is not a first time buyer, luckily you can still use your LISA to help fund the purchase. If you are both FTBs and both have a LISA, you can use both sets of bonuses to help you buy a single property. PROPERTY ELIGIBILITY Price: One of the biggest criticisms of the LISA is that the price cap of £450,000 has not changed since 2017, during which time average house prices have risen by 30%. In London, the average house price is now £564,000 and The Skipton Group Home Affordability Index predicts that more than 10% of local authority areas in Great Britain will have an average first time buyer price that exceeds the LISA price cap by the end of 2027. LISA funds cannot be used to buy a property costing more than the price cap (even if you are only buying a share of it), other than by withdrawing the money and paying the penalty. Type: LISA balances can be used to buy new and secondhand freehold or leasehold apartments and houses, or land for a self- build project. However, funds cannot be used for a houseboat, a buy-to-let property, a mobile/park home, or a property overseas, nor for solicitor’s fees or moving costs. FINANCIAL ISSUES Timing: Your LISA must have been open for 12 months before you buy a first home, otherwise you can only withdraw the money with a penalty. Funding: You must be buying with a
EXPERT COMMENT
While it is certainly a positive that some people are being supported by the LISA to take their rst step on to the property ladder, information should highlight the impact of unauthorised withdrawals and the lack of understanding around the savings product. HMRC’s recently published Understanding the Use of the Lifetime ISA report lays bare the confusion. In particular, the revelation that even nancially literate savers, including those actively contributing to their LISA, did not realise that the 25% penalty on non-qualifying withdrawals can leave them with less than they originally invested. People simply do not realise it’s not just a clawback of the Government bonus – it’s a loss on their own money. Once they understood this, there was broad consensus that the current rules feel unfair and that the withdrawal charge should be reduced to 20%. This would at the very least allow savers to break even if circumstances forced them to dip into their pot. While reducing the withdrawal charge could prevent people from being deterred from taking early withdrawals, it would avoid the current situation wherein savers who nd themselves in need of their money are having their own contributions unfairly reduced alongside the reclaiming of the Government bonus.
Rachael Grif n, Tax & Financial Planning Expert, Quilter
First Time Buyer October/November 2025 103
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