How a Lifetime ISA Can Help You Save for a House

Getting your foot onto the housing ladder can seem like a Herculean task, considering property prices, the economic climate and an impending and uncertain Brexit. However, there are some accounts that are specifically engineered to lend a helping hand; one such account is a Lifetime ISA (individual savings account).  


What is a Lifetime ISA and who can open one? 

Any UK resident between the ages of 18 and 40 can open a Lifetime ISA and deposit up to £4,000 a year until the age of 50. The government will then add a 25% bonus to those savings, up to a maximum of £1,000 per year. It should be noted that this limit of £4,000 counts towards the annual ISA limit* which is £20,000 for the 2019 to 2020 tax year. After 50 years old, account holders can no longer pay into their Lifetime ISA or earn the 25% bonus, however, the account will stay open and your savings will still earn interest or investment returns. 


Can you withdraw money from a Lifetime ISA?  

You can only withdraw money from a Lifetime ISA without incurring a penalty under certain circumstances:  

  • When you buy your first home
  • If you are aged 60 or over 
  • If you are terminally ill with less than 12 months to live. 

If you withdraw money for any other reason, you will have to pay a 25% charge which is designed to recoup the government bonus given as well as an additional charge on your original savings. This is why a Lifetime ISA is not the right account for short-term savings as you may end up with less than you put in.   


How can you use it to buy a house? 

If you wish you use the savings in your Lifetime ISA to buy a house, there are a few restrictions: 

  • The house has to be your first home
  • The property has to cost £450,000 or less
  • You must use a conveyancer or solicitor to act for you in the purchase
  • You must buy the property at least 12 months after you open the Lifetime ISA
  • You must buy with a mortgage

If you buy a house with someone else and they have a Lifetime ISA, they can also use both their savings and government bonus to purchase the property. However, if they own, or have a legal interest in any property (for example they’re a beneficiary of a trust that includes property), they will have to pay the 25% withdrawal charge to use their Lifetime ISA savings. Those with both a Lifetime ISA and a Help to Buy ISA, can only use the government bonus from one of them to buy their first home. Although you can transfer money from a Help to Buy ISA to a Lifetime ISA, you will have to pay the 25% withdrawal charge. 


This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.



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About gpfm   

gpfm are an independent financial planning company dedicated to the provision of personal, professional and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.