My Lisa provider charged a large fine when I bought a house, is that a mistake?

I have had a lifetime Isa (Lisa) for the last 5 years, which I am saving for a deposit on a house.

During this time I have saved £12,000, which has increased to £15,000 when HMRC contributions are taken into account.

Together with my partner, we have now accepted an offer on a property. This property will be my first home, however my partner has previously owned a home.

As my partner has owned a property before, we are lucky that he is contributing a large deposit. Together we are buying a house just over the £450,000 mark.

Beware: When using a Lisa, whether purchased individually or as a pair, the property value must not exceed £450,000.

As you may know, the fact that the house is over £450,000 means I can’t access the HMRC bonus on my Lisa.

It’s unfortunate, but I accept that these are the rules. However, I am very disappointed that as well as taking away my bonus, my Lisa supplier is also taking over £750 of my own money as a penalty.

I feel like it would have been ok if they took the interest out of my account, but to be penalized by taking my own money that I have saved is pretty heartbreaking.

Is this something other readers have come across, and if so, is there anything I can do? Via email.

Ed Magnus of This is Money responds: This is certainly a common riddle. There will be plenty of savings for your first home using a Lisa.

Once open, the Government will match £1 for every £4 you save, awarding a £1,000 bonus on the maximum £4,000 a year you can save. Essentially, it’s free money.

Unfortunately, however, Lisa can come back to bite you, as there are also some strict rules that you have to abide by that can end up costing you dearly.

The money saved can only be used for a first home, which must cost less than £450,000, or for retirement, and those who break the rules will be subject to a 25 per cent penalty on the amount withdrawn.

The key point here is that the penalty is applied to the total amount of funds that are withdrawn, not the total amount of funds that have been added.

So, in our reader’s case, that means the total funds they invested in Lisa, plus the government bond, plus any interest accrued during that time.

As our reader alludes to, one of the key rules is the fact that a Lisa can only be used for a first home if the property costs £450,000 or less.

Our reader had accumulated £15,000 in Lisa’s account: £12,000 in money they had put up plus interest, and £3,000 added on by the government.

A 25 per cent penalty on £15,000 equates to £3,750, which means they lose £750 more than the £3,000 added by the 25 per cent government top-up.

A spokesperson for savings website Savings Guru said: “This is not the decision of Lisa’s supplier, it is the government’s.”

Your reader’s anger should be directed at the government, this time, not at Lisa’s supplier.

‘Cash Isas are set up with a 25 percent penalty if savers break them. This is meant to cover the bond, but it’s the full amount, so savers lose if they bust them.

‘For example, £1,000 saved gets a bonus of £250 but, if broken, the 25 per cent penalty is £1,250, not £1,000, so the saver gets back £987.50, i.e. £1,250 £ minus the £312.50 penalty.

‘The government reduced this during Covid to 20 per cent, but has raised it again. Your reader’s anger should be directed at the government, this time, not at the provider.’

Impulse: savers under 40 years of age can open an Isa for life and obtain a 25% government bonus.

Impulse: savers under 40 years of age can open an Isa for life and obtain a 25% government bonus.

How does Lisa work?

Anyone between the ages of 18 and 39 can open a Lisa and can add to it until they reach 50.

Once people turn 50, they will not be able to pay or earn the 25 percent bonus. However, your account will remain open and your savings will continue to earn interest or investment returns.

It can also be used as part of their £20,000 annual personal Isa allowance and, as with the standard Isa, they can choose to save or invest their money through Lisa.

Two people shopping together can use their own Lisa for the deposit.

It can also be used to shop with someone who isn’t a first time buyer, though you obviously can’t use your own Lifetime Isa if you had one.

The money in a Lisa can be used for a deposit on a first home or withdrawn starting at age 60 to help finance retirement. I can’t be used for anything else.

Individuals can contribute up to £4,000 a year and the Government will add a 25 per cent bonus to their savings, up to a maximum of £1,000 a year.

This means that for every £4 saved, the Government will add £1 up to a maximum of £1,000 each tax year until someone turns 50.

What to keep in mind

When using Lifetime Isa to purchase a home, it is critical that individuals are aware of any restrictions that could void the bond.

First, as already mentioned, whether you are buying individually or as a couple, the value of the property must not exceed £450,000.

You must be a first-time buyer to use Lifetime Isa for a property purchase.

This means they cannot have owned property in the UK or anywhere else in the UK. It is worth noting that the property they buy must also be in the UK.

Savings: Lifetime Isa, a tax-free savings account for people ages 18-39, was launched in 2017 to encourage younger people to save for their first home or retirement.

Savings: Lifetime Isa, a tax-free savings account for people ages 18-39, was launched in 2017 to encourage younger people to save for their first home or retirement.

They must also buy a house in which they plan to live. The scheme is not for those buying a house to rent or a holiday home.

They will have to use a typical down payment mortgage where they will pay a portion of the loan, as well as interest, each month until they finally pay off the mortgage.

They can’t, for example, use an interest-only mortgage, where they only pay interest each month, and the loan amount remains the same.

Finally, the Lisa cannot be used for any home purchase made within 12 months of opening.

How to withdraw money for a house deposit

When purchasing a property, it is vital that the account holder does not simply withdraw the funds, as that will result in penalty charges being applied.

Instead, they should ask Lisa’s supplier to send the money to the buying attorney.

Mistake: Lisa's savers should not simply withdraw their money to pay a deposit on the house, as this will mean they will be charged a penalty.  Instead, they should ask their provider

Mistake: Lisa’s savers should not simply withdraw their money to pay a deposit on the house, as this will mean they will be charged a penalty. Instead, they should ask their provider

The money can be used for the deposit when the contracts are exchanged and before their completion, although there can be no more than 90 days of delay between them.

If the sale fails, the lawyer can return the money and the bonus to Lisa, although it must be the same amount.

What are the best Lisa cash rates?

For anyone saving to buy a property within the next five years, keeping cash in savings rather than investment is sensible, as this will prevent short-term dips in the stock market.

Lisa’s rates aren’t as competitive as other savings offerings, but the government top-up means that as long as you’re comfortable with Lisa’s rules, it’s the best savings vehicle for maximizing returns.

Moneybox currently offers Lisa’s best cash offer by paying 2 percent, although this rate includes a flat 0.2 percent bonus for the first year.

pension against Lisa

Workplace pensions where contributions are matched by the employer are probably the starting point for most retirement savers.

However, the Lisa is likely to be more attractive to basic-rate taxpayers looking to save outside of the workplace, given the combination of the 25 percent upfront bonus, tax-free withdrawals starting at age 60, and the flexibility to access before age. 60, though subject to a 25 percent early withdrawal fee.

For taxpayers with higher and additional rates, the ability to claim additional tax relief tips the balance in favor of pensions.

Tom Selby, head of retirement policy at AJ Bell, says: “For those who are employed and qualify for automatic enrollment, saving on their workplace pension, which benefits from both a matching contribution and tax relief initial, it’s a no-brainer.” .

“However, for retirement savings beyond this, the choice is less clear, with several factors including your income tax band, flexibility, and death benefits all potentially shifting the balance in one way. or another depending on your priorities.

‘In reality, many people will choose a combination of products to meet their retirement savings needs. The key is to understand how they all work and the different pros and cons of each.’

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