How does inheriting a property affect the status of my LISA?
28 September 2021
Question by Asia
I am 23 and thinking about how would be the best way to save to a deposit for a house. I am realistically at least 2 years away from buying a property. Very fortunately I am a beneficiary in the will of my grandmother, who is over 80, to be given a portion of her estate when she passes away, including a portion of her house. I know this would make me no longer a first time buyer, so I am concerned if I used a Lifetime ISA that I would lose money if she were to sadly pass away before I could buy a property, even though this is the most efficient way to increase my deposit. What is the best way to save my money whilst also increasing it’s value above the rate of inflation?
Answered by Boring Money
A conveyancing solicitor may be able to help answer the question about inheriting a property and its implications for the LISA status. However, I believe that if the property is sold on your grandmother's death (hopefully many years from now) and the title deed never passes to you then it won't have implications for you using your LISA to buy your first home.
A Will can also be altered after the death of the person who created it by something called a deed of variation. It has to be agreed by all beneficiaries but it might suit you to have your name removed as the inheritor of the property and instead, you simply receive a share of your grandmother's estate equal to the sale value of the property. Again, this would be something a solicitor would be best placed advising you on when the time comes. Or depending upon your relationship with your grandmother it might be possible to change it now.
This is a complicated situation so you would need to research further, discuss it with everyone concerned and seek legal advice.
In terms of saving your money to increase its value above inflation. The LISA was intended for this very purpose. Within a LISA you can opt for a Cash account which provides security but a low level of interest (and almost certainly below inflation). The alternative is to save in Stocks & Shares (the global stock markets). The global stock markets go up and down on a daily basis so can't be relied upon in the short-term to give you a better return than cash or beat inflation, but in the long-term they provide the greatest source of returns.
Anyone who needs access to their money in the short-term (deemed to be less than 5 years) should therefore think carefully before investing in stock markets. However, if you don't have a lump sum to invest and are saving on a monthly basis you can benefit from something known as pound cost averaging.
Put simply, this means that when stock markets fall in value month on month, the money you have contributed is buying a larger number of shares at a lower price. Think of it like shopping in the sales.
For example, if I am saving £100 a month and in the first month a share is worth £1, I get 100 shares. If in month two the value of the share has fallen to £0.50 I get 200 shares for my £100. So I have 300 shares at a cost of £200, which means that if the share price then rises to £1.50 my 300 shares are worth £450 (a £250 profit).
In terms of choosing the right investment within your LISA. Your LISA provider will have a range of investment funds to choose from. You don't want to have all of your eggs in one basket, so having exposure to a broad spread of global stock markets and lower risk funds (such as government bonds) at a low cost is a prudent approach. It's what investment professionals call 'diversification'.
As you approach the point you wish to buy a property you can de-risk the portfolio by reducing exposure to stock markets and increasing exposure to government bonds and cash.
I hope this helps.