Buying your first home is exciting, but it can also feel like you’re learning a completely new language overnight. One topic that regularly causes confusion is the Lifetime ISA (LISA), particularly when buyers assume all providers work in exactly the same way.

As a conveyancer, Bethany Hudson has acted for many first-time buyers using Lifetime ISAs and, whilst the scheme itself is relatively straightforward, the practical side of using one during a property transaction isn’t always as simple as people expect.

Understanding how your Lifetime ISA works before you make an offer can help avoid unnecessary delays and keep your purchase on track.

What is a Lifetime ISA and How Does it Work?

A Lifetime ISA is a savings account designed to help people either buy their first home or save for retirement.

You can open a Lifetime ISA if you’re aged between 18 and 39 and contribute up to £4,000 each tax year until you turn 50. The Government then adds a 25% bonus, meaning you could receive up to £1,000 each year on top of your own savings.

To use your Lifetime ISA for a house purchase, the property must usually:

• Cost no more than £450,000;
• Be your first home
• Be purchased with a mortgage (subject to limited exceptions); and
• Be intended as your main residence.

If the money is withdrawn for any other reason before the age of 60, a 25% withdrawal charge will normally apply.

Lifetime ISA vs Help to Buy ISA: What’s the Difference for First-Time Buyers?

Although Help to Buy ISAs closed to new applicants several years ago, many buyers still have existing accounts and are often unsure how they compare to Lifetime ISAs.

Help to Buy ISA

The Help to Buy ISA is closed to new applicants. It offers a maximum government bonus of £3,000, and that bonus is claimed during the conveyancing process rather than being paid up front. There is no withdrawal penalty if you decide not to use the funds for a property purchase.

Lifetime ISA

The Lifetime ISA is still available to open if you’re aged between 18 and 39. The government bonus is worth up to £1,000 each tax year, and the funds, including the bonus, are released by your provider directly to your conveyancer before completion. If funds are withdrawn for an ineligible purpose, a 25% withdrawal charge will usually apply.

Can I Use Both?

One of the biggest misconceptions is that you can claim both Government bonuses when buying your first home.

If you have both a Help to Buy ISA and a Lifetime ISA, you can use savings from both accounts towards your purchase, but you can only claim the Government bonus from one of them.

How Does a Lifetime ISA Withdrawal Work in Conveyancing?

Although every provider follows the same Government scheme rules, their own processes can differ. This is something buyers often don’t realise until they’re well into the transaction.

Some providers process withdrawal requests quickly, whilst others take longer. Every provider also has its own method of dealing with conveyancers, whether that’s through an online portal or by requiring specific forms that must be completed before funds can be released.

From a buyer’s perspective, these differences may seem minor, but during a transaction, they can make the difference between exchanging contracts this week or next.

Your conveyancer cannot simply request the money from your Lifetime ISA in the same way that you can transfer funds from a standard bank account. The provider’s withdrawal process must first be completed before the funds can be released, which is why planning ahead is so important.

Another point that often catches buyers by surprise is what happens if there is money left over after completion. Clients sometimes assume their conveyancer can transfer any surplus directly back to them. In reality, many Lifetime ISA providers require any unused funds to be returned to the Lifetime ISA account. If you then decide to withdraw those funds for a non-permitted purpose, you’ll usually be subject to the Government’s withdrawal charge.

This is why it’s so important to tell your conveyancer that you’re using a Lifetime ISA as soon as you instruct them. It allows the necessary steps to be taken early and helps reduce the risk of avoidable delays later in the transaction.

Using a Lifetime ISA to Buy Your First Home: Final Thoughts

A Lifetime ISA remains one of the best ways for many first-time buyers to build a deposit, particularly with the benefit of the Government bonus.

However, buying a property involves more than simply saving the money. Understanding how your provider works and involving your conveyancer from the outset can help avoid delays and make the process significantly less stressful.

If there’s one thing Bethany encourages at every first-time buyer to do, it’s tell your conveyancer about your Lifetime ISA as soon as you instruct them. It’s a simple conversation that can save valuable time later in your purchase.

If you’re buying your first home and have questions about using a Lifetime ISA or Help to Buy ISA during your purchase, we’re always happy to help explain the process and guide you through the legal aspects of your transaction. You can get in contact with Bethany Hudson via b.hudson@woodstocklegalservices.co.uk or by completing the form below.