If I inherit my mum’s house will I be able to use my lifetime Isa? | Money

Q I’m single, earn around £20,000 a year at age 34 I have a pension pot which is currently worth £15,000. I want to save for my retirement and eventually buy a house.

I recently opened a lifetime Isa, as I know they can help me to buy a house although so far I’ve only put in £100.

My mum has been diagnosed with terminal cancer. When she dies she’ll leave half of her house to me. I can’t work out if I’ll still be able to buy a house and use the lifetime Isa money for the deposit if she were to die and leave the house to me, before I get the chance to put a deposit down on somewhere. Or wouldn’t I be allowed to use the Isa because I’ve inherited half a house? I never intend to live there and would be selling it with my brother.

Should I pay in to it, or could I end up losing 25% of my money or having to leave it in there until I retire? Your help would be really appreciated.

A You are right to think that inheriting a house could stop you being classified as a first-time buyer and so be unable to use funds in a lifetime Isa (individual savings account) to pay the deposit on a home of your own without paying a 25% penalty. However, you may be as staggered as I was to discover that HM Treasury (HMT) has addressed the question of what happens if you inherit property while saving in a lifetime Isa. HMT says you can still be classed as a first-time buyer if you inherit a property but ownership of it is never formally transferred into your name – for example the property is sold after the death of its owner and the cash proceeds are passed to you rather than the title of the property. HMT also makes it clear that being the beneficiary of property in the will of someone who is still living (like your mother), doesn’t stop you from being a first-time buyer for lifetime Isa purposes. So you should be OK if you buy a house before your mother dies and/or your brother inherit your mother’s house but it is sold rather than being put in your names at the Land Registry.

That doesn’t mean that a lifetime Isa is the ideal choice for your savings, not least because you already have a pension pot in which to tie money up for later life – although you’ll be able to get at your pension cash at age 55 rather than at 60 with a lifetime Isa. For your other savings towards a deposit for a home, the lifetime Isa is far from ideal if there’s any chance that you’ll need to withdraw any of the cash you have saved to help you to pay regular bills. HMT is clear: “If you treat your lifetime Isa as a short-term savings product, you could get back less than you paid in” because of the 25% penalty charge on withdrawals before the age of 60 which are not for buying a first home worth less than £450,000. So although you won’t get the government bonus that you earn with a lifetime Isa, because there won’t be a 25% charge on withdrawals, you might be better off with a standard cash Isa.

Muddled about mortgages? Concerned about conveyancing? Email your homebuying and borrowing worries to Virginia Wallis at virginia.wallis.freelance@theguardian.com

Source link