Q I am currently planning on using my first-time buyer lifetime Isa to buy a house to rent out. I am in the forces and so I am able to get a consent to let as I won’t be able to live there. The property is £120,000 with a rent of about £800 a month. I have been offered a mortgage of £489 a month for five years fixed. I don’t intend on moving into the house and I am using it as an investment. I then intend to buy a house with my girlfriend later on down the line and keep the first property as a rental. However, I am also considering just waiting until I leave the forces and buying a house with my girlfriend as a first-time buyer and saving all the perks as a first-time buyer. I’m not sure what to do; do you have any advice?
EJ
A Yes. Forget using your lifetime Isa to buy a property that you will use as an investment because it is not allowed. You are right in thinking that, because you are unable to live in a property when you first buy it because you are in the forces (or other type of crown servant), you are allowed to rent it out. But you are eligible to get the benefits of your lifetime Isa when buying property only if you intend to use the property as your main residence at some point – when you return from serving overseas, for example. In the words of the government guidance: “When you first purchase the property, you will be able to rent it out until you are able to move in.”
I can see why you would want to reap the benefits of your lifetime Isa – which can be opened by UK residents aged between 18 and 40 – because the government adds a 25% bonus to your Isa savings up to a maximum of £1,000 each year.
Investing in a rental property would also mean that you could miss out on a first-time buyer perk of zero tax, depending where in the UK you plan to buy. In England and Northern Ireland you can spend up to £425,000 on a property without triggering a stamp duty land tax bill, and in Scotland there is no land and buildings transaction tax on the first £175,000.
These allowances are available only if the purchase property is going to be your home.
In addition, if you were to buy a rental and then a home with your girlfriend, you would have to pay a higher rate of tax on the second property, which your girlfriend might not be too pleased about. So I’d wait until you are ready to buy a house with your girlfriend both as first-time buyers. But I’m not sure why that has to be once you have left the armed forces, so you and your girlfriend may want to have a chat about that.
