The Lifetime ISA is the best ISA for first time buyers, as we concluded in Best ISA for First Time Buyers. Now that we have a winner, how do you maximise the L-ISA for your first home purchase, and what are the rules you need to be aware of?
How does the 25% bonus work in a Lifetime ISA?
Every time you deposit into the ISA, the government will automatically match it with another 25%, within a month. The great thing is, if your LISA pays you interest on your savings, you can also earn interest on the free money that the government has deposited into your account too! So its worth shopping around for the best interest rate you can get on your LISA.
When you take out your Lifetime ISA money for a property purchase, you can take out the entire amount, including the 25% bonus.
What are the restrictions on the Lifetime ISA?
Unfortunately, this “free money” does come with a few restrictions! But nothing to worry most first time buyers. Firstly, the value of the property you are purchase has to be less than £450,000.
Secondly, this must be your first ever property purchase in the UK.
Can I qualify for a L-ISA bonus if I have jointly owned a property before?
No, you do not qualify for the L-ISA bonus for your home purchase, if you have owned any property before. This includes a property you have owned jointly with someone else (i.e. your spouse if you’re married). If you divorce or separate from your husband or wife, and sell your jointly owned property, you still do not qualify for the Lifetime ISA bonus for your next property purchase, even though you don’t own a property anymore.
Do married couple joint Lifetime ISAs exist?
No, Lifetime ISAs can only be opened in one name. However, both you and your spouse can open a Lifetime ISA account each, provided both of you have not owned a property before.
Can I use an Lifetime ISA bonus even if my spouse is not a first time buyer?
Yes – you can still open a L-ISA and get the 25% bonus if you’re a first time buyer. But your spouse, who is not a first time buyer, will not be able to open a Lifetime ISA account and get the FTB 25% bonus. You can still buy a property jointly, using your L-ISA savings and 25% bonus in your account.
When is the best time to open a Lifetime ISA?
The £4,000/year maximum savings allowance resets at the start of every tax year (approximately the 5th April every year). Therefore, you should try to open your Lifetime ISA before this date, and fund it before this date, to use the allowance.
For example, if you open and fund a L-ISA with £4,000 on the 15th March 2020, you can then add another £4,000 on the 6th April 2020.
Also, bear in mind that you cannot use your L-ISA savings for a house purchase within 12 months of opening the account. So you should not leave the opening of your account too late, otherwise you might have to sit around and wait for the 12 months to be over before you can purchase your property and use the 25% L-ISA Bonus.
Where can I find the definitive information on Lifetime ISAs?
To get the official information on Lifetime ISAs and all the rules, process, and guidance, visit the official Lifetime ISA website on Gov.uk.