Lifetime ISAs - or LISAs - were introduced by Government in 2017 as a way to help those under 40 save to buy their first home or to save for later life.
Types of complaints we see
Most of the complaints we get from consumers relate to:
- Delays in opening Lifetime ISAs
- Transferring money in and out of a Lifetime ISA into other ISAs
- Misunderstandings of the the rules
- Withdrawal criteria
- Length of time a Lifetime ISA needs to be open before taking money out
What we look at
When we look at a complaint, we'll look at both sides of the story and all available evidence. Different types of ISAs will have specific variables that we'll look at when making a decision. In the case of Lifetime ISAs, depending on the nature of the complaint, we will look at how well the rules for Lifetime ISAs were explained to the consumer and whether a Lifetime ISA was the right product for the situation.
For Lifetime ISAs, we'll look at if you clearly explained how the product works, particularly the rules around transfers and withdrawals. The majority of complaints that we see from consumers focus on the explanations they were given, and their understanding of the rules around using a Lifetime ISA.
How the government bonus is calculated
The government bonus added is 25% of whatever is put into the account, up to £1,000 per year. This stops when the account holder turns 50.
Eligibility criteria for withdrawing money from a Lifetime ISA
Consumers are allowed to take money out of their Lifetime ISA if they're:
- buying their first home - they must live in the property, so buy to let is not allowed with a Lifetime ISA
- aged 60 or over
- terminally ill, and only have 12 months or less to live
If they take out money for any other reason, they'll have to pay a 25% charge for the amount they want to withdraw.
This charge recovers the government bonus and applies an extra charge to the original savings.
Withdrawal charge example
A consumer pays £800 into their Lifetime ISA over a year, accruing a government bonus of 25%, which would be £200, giving a total of £1,000. They want to withdraw the full £1,000 from the Lifetime ISA, but incur a withdrawal charge (25%) of £250, meaning that they would only receive £750.
The withdrawal charge will still apply even if the first bonus hasn't been received.
Factors that may affect purchasing a property
If a consumer is planning on buying their first home, they can use a Lifetime ISA to save for it. But there are some conditions for this, and all of these must apply to the purchase:
- the property has to cost £450,000 or less
- they must buy the property after the Lifetime ISA has been open for 12 months at least
- they must use a conveyancer or solicitor to act on their behalf in the purchase - the Lifetime ISA provider will pay the funds directly to them
- they have to buy with a mortgage
- they can't already own a property or have a legal interest in a property (such as being a beneficiary of a trust that includes property)
If they're buying with someone else who also has a Lifetime ISA, they can use theirs too - as long as they both meet all the conditions.
Consumers can have a Help to Buy ISA and Lifetime ISA at the same time, but they can only use the government bonus from one when buying their first home.
Any changes transferring money between different types of ISAs may cause
Consumers can transfer their money in and out of a Lifetime ISA to other types of ISAs, but if they transfer to a Help to Buy ISA, this will incur the 25% withdrawal charge.
If a customer brings a complaint to you about their Lifetime ISA, you have eight weeks to give them your final decision. You will need to explain to them at that time about what they can do if they're unhappy about the decision you've made, including bringing their complaint to us.
Find out more about how consumers can complain to us.
Putting things right
As with all cases that we look at, we review and evaluate each on an individual basis, taking both sides of the story into account and looking at all available evidence.
If we decide that you should pay some compensation to the customer, this will be calculated specifically based on the case.
If you have any questions about this, or would like some advice, call our technical desk.
Customer loses bonus from Lifetime ISA when they cashed it in
Unexpected withdrawal charge from transferring money to different ISA types
Consumer complains that online banking wasn't clear enough for opening a Lifetime ISA
Consumer complains on missed bonuses because of delay to opening account