At Nutmeg we’re always talking up the merits of a Lifetime ISA to purchase your first home (more on that later). But as with all major purchases, it’s nice to know which hoops to jump through. Below we dive into the detail.
Why choose a Lifetime ISA?
A Lifetime ISA (or LISA) allows anyone aged between 18 and 39 to contribute up to £4,000 per tax year, tax-free, and benefit from a government bonus of 25% (up to a maximum of £1,000). At Nutmeg, we offer a stocks and shares Lifetime ISA.
Your Lifetime ISA can be used to buy a first home provided the home is in the UK and has a final sale price of £450,000 or less. Alternatively, you can leave the money in your LISA to help fund your retirement.
Now the complicated stuff
Let’s say you’ve found the perfect home and have the money to make it yours. What’s next?
If you use a Lifetime ISA to purchase a home, you’ll need to work with a licensed conveyancer – a person who deals with all legal matters, administration, finance and queries involved in the sale. Not sure where to begin? Learn more about conveyancers at the Money Advice Service.
If you’re semi-familiar with the process, read on for our simplified explanation of how the process works. If not, keep scrolling to the step-by-step guide.
How it works – in a nutshell
- You and your conveyancer will each complete declaration forms (both an investor form and a conveyancer form) and post them to Nutmeg
- Once received, we’ll call you to complete our verification checks
- After the above steps are completed, we’ll request the withdrawal. From here, withdrawals usually take a further 3-7 business days to be processed and sent to your conveyancer. Your investments will be sold at the next twice weekly trade cycle and the proceeds will be sent directly to your conveyancer (not your bank account) once the trades have settled
- Your conveyancer will use the money towards the home purchase
How it works – step-by-step
- Download and complete the Investor Declaration Form and post it to us. You will also need to provide your conveyancer with the same information as they’ll be posting that information to us, along with a cover letter on the firm’s headed paper
- Tell your conveyancer that you have a Lifetime ISA at Nutmeg and that you’d like to withdraw from that investment and use it towards your home purchase
- Send the Conveyancer Declaration Form (or the link) to your conveyancer and ask them to complete the details and post the form to us
- We will send you a Nutmail once we have received both declaration forms. Once received, we’ll begin our verification checks
- We’ll compare the declarations and ensure that the information matches before following up individually if any information is missing
- We will call you to complete our security checks
- Once we have received and verified both declaration forms and called to complete our verification checks, we will request the withdrawal and begin the withdrawal process
- We’ll process the withdrawal at the next twice weekly trade cycle and send the cash to your conveyancer’s bank account (not your own) once the trades have settled. Once requested, withdrawals usually take between 3-7 business days to process and send to your conveyancer’s bank account
- We’ll send you a Nutmail message to confirm that the money has been sent to your conveyancer
- Once the property purchase completes, your conveyancer is required to notify us within 10 business days
- If the purchase will not be completed within 90 days of the withdrawal for any reason (for example, if any of the parties withdraw), your conveyancer is required to return the amount withdrawn to Nutmeg within 10 business days, after which we’ll reinvest it for you and your Lifetime ISA will remain active. Alternatively, your conveyancer can ask for a 60-day extension followed by a further 30-day extension if required
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest.
A Lifetime ISA may not be right for everyone:
- You must be 18–39 years old to open one.
- If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty (the withdrawal penalty will be temporarily reduced from 25% to 20% from 6 March 2020 till 5 April 2021 due to coronavirus). So you may get back less than you put in.
- Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension.
- If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions.
Tax rules may change in the future. If you are unsure if a Lifetime ISA is the right choice for you, please seek independent financial advice.