Your questions about the Lifetime Isa — the Treasury responds
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Many questions about how the Lifetime Isa would work in practice were raised by under-40s at an FT financial workshop — and by readers of FT Money, who emailed us in the run-up to launch day. We put your questions to HM Treasury — and here is what they had to say.
Will the £450,000 limit rise in line with house price inflation?
The Treasury says: As with all policies, the government will keep the parameters of the policy under review.
Why isn’t there a higher limit for properties within London?
The Treasury says: The £450,000 level is consistent with Help to Buy Isa in London. The government offers a number of different and complementary schemes for first time buyers and they address different needs in different ways. The average price of a first-time buyer property purchase as of January 2017 (House Price index) was £183,295 and well within the Lifetime Isa cap.
If I save up for 10 years, and house prices have risen but the £450,000 limit has not, then can I get my money back without paying the penalty?
The Treasury says: Any early withdrawal not used for purchasing a first home would be subject to a 25 per cent charge.
Is there a limit to the number of people I can team up to buy a house with? I have a brother and a sister and we are all under 40 — can we all save towards one property with the Lifetime Isa and all use the bonus?
The Treasury says: A single person or any number of people can put their Lifetime Isa and bonus towards the same property, provided they all meet the eligibility criteria (including being a first-time buyer) and the overall price of the house is under £450,000. If only one of you meets the eligibility criteria (for example, if one of you already owns a property or is too old to have opened an account) then the person who meets the criteria can use their Lifetime Isa funds.
If I buy a first home jointly with a friend or partner using Lisa funds, could that £450,000 property value limit be doubled to £900,000?
The Treasury says: No — the overall price of the house must be under £450,000.
After the property has been purchased, do I have to notify the government if I sell the property, or trade up to a bigger home in time?
The Treasury says: No.
How long do I have to wait before I can rent out the property, or is it banned for life? And how will this be monitored?
The Treasury says: The Lifetime Isa is being introduced to help people save towards the purchase of their first home or for later life. The Lifetime Isa cannot be used to invest in buy-to-let property.
If I take up a job placement abroad in the future, can I rent out the property I’ve bought with the Lifetime Isa?
The Treasury says: It may be possible to rent out the property if a subsequent overseas engagement arises after the property has been purchased. However, it should be noted that HMRC has a range of existing procedures at its disposal to ensure compliance with the rules. In addition, the Lifetime Isa legislation provides that a penalty may be imposed on any person who dishonestly does anything to get a Lifetime Isa bonus for themselves or to avoid a withdrawal charge.
How can I compare what’s better value for me — paying into the Lisa and getting the bonus, or paying into a pension? Is there going to be a government tax calculator to work this out?
The Treasury says: It is not the government’s role to provide financial advice to individuals. However you can call the Money Advice Service for impartial information, as well as discuss with Pension Wise as part of a broader conversation about your retirement future.
Why are no banks offering the Lifetime Isa from launch — why is it only the investment companies?
The Treasury says: We expect more providers — including cash providers such as the Skipton Building Society — to enter the market later in the year as they get their systems in place.
Can I still pay into the Lifetime Isa if I work abroad for a spell of time, or would I have to close the account? (And would I have to pay the penalty?)
The Treasury says: You must be a UK resident to open and/or pay money into an account. If you become non-resident you cannot pay money into the account but the account may be kept open pending your return to residency (and subject to the individual provider’s terms and conditions).
We purchased a flat, naming our daughter as part-owner, when she was a student. All income came to us, but she paid no rent. Will she still be eligible to use this proposed Lifetime Isa to buy her own property?
The Treasury says: No, your daughter cannot use a Lifetime Isa to buy her own property — she already has an interest in the property and therefore does not count as a first-time buyer.
What happens if I’m saving up for a property through the Lifetime Isa, and then my mother dies and I inherit her house?
The Treasury says: If you have or had an ongoing beneficial interest in a residential property via a trust, (including a trust created by a will or divorce), then you are not a first-time buyer.
However, you may be a first-time buyer if:
(a) you are named as a beneficiary of residential property in the will of a person who is still living; or,
(b) if the trust to which you are or were a beneficiary was only created for the purpose of selling the property and other assets following a death or divorce, and the title of the residential property was never transferred to your name or to a trust which you are an ongoing beneficiary; or
(c) if you are only acting in a trustee role and will not be entitled as a beneficiary in the future (and do not have any other interests in residential property).
If I were to open a Lifetime Isa this year, save the maximum until I’m 50, but then retire abroad after the age of 60, how will that affect the tax-free status of my savings?
The Treasury says: Whether tax will be payable on funds withdrawn from a Lifetime Isa post 60 will be dependent on the tax legislation of the country in which you reside.
Can I at the age of 60, or at any point after they turn 18, transfer the Lisa to my children?
The Treasury says: Post-60 you could withdraw the funds from a Lifetime Isa (including the government bonus) for any purpose, including gifting the funds to others. The funds will have left the Isa wrapper and, depending on the amounts being gifted, may have tax liabilities for you or the recipients. If you withdraw your money for any other purpose (apart from purchasing a first home) it will be subject to a 25 per cent charge.
Can I hold a Help-to-Buy Isa and a Lifetime Isa and collect government bonuses on both before rolling the Help-to-Buy Isa pot — including bonuses — into the Lisa?
The Treasury says: In 2017-18, you can transfer any Help to Buy Isa savings (and any interest accrued on those savings) built up before April 6 2017 into a Lifetime Isa without it counting towards the £4,000 Lifetime Isa contribution limit for 2017-18. You will then receive a 25 per cent bonus on these contributions in April 2018. Any transfer of savings/interest built up after April 6 2017 will count towards the £4,000 Lifetime Isa contribution limit for 2017-18.
You cannot withdraw funds from your Lifetime Isa to purchase a first home until at least 12 months have passed since your first subscription to the Lifetime Isa. If you remove funds before then you will have to pay the withdrawal charge (NB: during the tax year 2017-18 an account can be closed at any time and the closure will not be subject to a withdrawal charge. However a bonus will not be paid on closed accounts).
You can open a Help to Buy Isa and a Lifetime Isa and collect bonuses on both. However, you can only use one account towards the purchase of your first home.
I want to use the Lifetime Isa to invest, but who will advise me on how to do this?
The Treasury says: The Financial Conduct Authority regulates providers in their selling of the Lifetime Isa. Their final rules were published on their website at the start of March.
There is no specific advice hotline, however, you can call the Money Advice Service for impartial information, as well as discuss with Pension Wise as part of a broader conversation about your retirement future.
Finally, you can also look on the government’s Lifetime Isa website which will provide further information on the product.
If I have made an investment loss and I withdraw money, how will the penalty be calculated?
The Treasury says: The withdrawal charge is always calculated on the amount withdrawn from the account, irrespective of how the account has performed. A withdrawal of £100 will have a charge of £25 deducted.
What happens to the money in a Lifetime Isa if I die? Will my family get the money, or will they have to pay the penalty?
The Treasury says: The Lifetime Isa has the same inheritance tax treatment as other Isas. Upon the death of the account holder, the account will form part of the estate for inheritance tax purposes.
As with other Isas, the spouse or civil partner of the deceased account holder will have an additional permitted subscription equal to the amount held in the deceased’s Lifetime Isa, at death (including any government bonus owed but not paid).
No government charge will apply to withdrawals post death. If the surviving spouse/civil partner chooses to do so they will be able to pay up to £4,000 per year of this into their own Lifetime Isa, subject to normal subscription criteria.