Can You Use Your Lifetime ISA for a Self-Build Property?

A Lifetime ISA is a fantastic way to save for your first home. With the ability to boost your savings with the 25% government bonus, it can be a great way to get on the property ladder sooner. And yes, you can also use your Lifetime ISA for a self-build property! In this article we’ll explain the basics of how a Lifetime ISA works, and the conditions that you need to meet in order to use it for your self-build home.

What is a Lifetime ISA?

A Lifetime ISA is a type of tax wrapper that has been created to help first time buyers save for their first home. It provides an upfront bonus of 25% on top of any money contributed in, up to £4,000 per year.

This means that if you make the maximum contribution of £4,000 you’ll receive a guaranteed, free bonus of £1,000 added into the account. This is a great way to boost your savings for a first home deposit.

The account can be left in cash, or it can be invested using a Stocks and Shares Lifetime ISA. This means that in addition to getting the initial 25% bonus on your money, you could also benefit from compound growth on this bonus as well. Obviously, the normal rules of investments apply. The investments can go down as well as up, so if you’re going to go down this road it’s important to make sure you have a long enough time frame before you expect to need the money for your house.

In addition to being used for a first home, you can also keep the funds invested and access them for your retirement once you hit age 60. In order to open a Lifetime ISA you have to be between the ages of 18-39, however you can pay into the account until you turn 50.

When Can You Access A Lifetime ISA?

You can actually access the Lifetime ISA funds whenever you want, however you will pay a 25% penalty if you withdraw it before age 60 and not for the use with a first home. This essentially takes your bonus, plus an additional penalty from your own money as well.

You don’t pay this penalty when you use the Lifetime ISA to purchase your first home (obviously). If you decide not to buy a property, or you just want to use it for retirement planning, you can also access the funds in the account after you turn 60 without triggering the 25% penalty.

What Type of Property Can You Buy with a Lifetime ISA?

There are some conditions on the type of property you can use your Lifetime ISA for. Firstly, it must be your first property. You can’t have owned a property anywhere else in the world before. If you are buying the property jointly with somebody else, you can still use your Lifetime ISA to go towards the purchase if they have owned a property before, but they can’t use their own Lifetime ISA towards the purchase.

In addition to being a first property, it also needs to be purchased for £450,000 or less. This likely isn’t going to be too much of a problem in many areas in the country, but if you’re in London this could be a somewhat difficult figure to stay under. You also need to have held the Lifetime ISA (with some money in it) for at least 12 months before you purchase a property. This is one of the key reasons why it can make sense to open a Lifetime ISA as soon as possible, even if you only put a tenner into it.

A couple of other stipulations include that you must be buying the property with a mortgage and you must use a conveyancer or a solicitor to complete the purchase, as the Lifetime ISA proceeds will be paid to them on your behalf. Importantly, none of this precludes you from using a Lifetime ISA towards a self-build property. You do, however, still need to meet all of the above conditions as you would if you were purchasing a pre-built property.

One key consideration to keep in mind is that it can be difficult to get a bank to offer a mortgage for vacant land. This could mean that you find it tough to fill the criteria needed in order to access the Lifetime ISA for the deposit for the land, which is generally the most expensive part of a property purchase or self. A mortgage broker might be able to help, and we cover this issue in more detail here.

Summary

A Lifetime ISA is a very attractive tax wrapper for first time buyers, as it provides a guaranteed 25% bonus on any contributions up to £4,000 per year. There are certain conditions on the type of property that can be purchased with use of a Lifetime ISA, but as long as all of these conditions are met you can use a Lifetime ISA to help fund a self-build property.