Buying a property

This guide will explore:

• Investing through a Lifetime ISA (LISA) to buy your first home
• Using other investment products, such as our Stocks and Shares ISA, to save for a deposit
• Buying a second home, which comes with additional rules and tax considerations
• Investing in property as part of your retirement planning
• Helping children get onto the property ladder
  

Buying your first home

We believe that, ideally, first-time buyers would be able to put down a deposit equating to 10% of the value of a property. This can make your enquiry towards buying a property more attractive to lenders. First-time buyers cannot own, or have owned, a home in the UK or anywhere in the world.

The LISA is available to those aged 18 to 39 who reside in the UK or are crown servants and contributions can be made until you're 50. Contributions into a LISA – limited to £4,000 every year, which forms part of your £20,000 annual ISA allowance – benefit from a 25% government bonus, which is paid when you contribute. There are two types of LISA. Stocks and Shares LISAs allow for investment in financial markets with tax-free returns, while Cash LISAs are tax-free savings accounts. We provide a Stocks and Shares LISA, but do not offer a Cash LISA. 

Depending on the value of the property, the LISA can be an ideal vehicle for saving to buy your first home. You can access the money in your LISA to buy your first home worth up to the value of £450,000, or for retirement purposes once you’re 60, as well as if you’re terminally ill. If you need to use it for reasons outside these criteria, you’ll have to pay a government withdrawal charge of 25%.

Around one in six first-time buyers in the past year used a LISA when buying their first home, according to Pensions UK, the trade body formerly known as the Pensions and Lifetime Savings Association. The LISA has proven an effective tool for our customers looking to buy their first home. We currently have 58,000 LISA customers and have already helped more than 6,500 first-time buyers get onto the property ladder. But given the annual limit on contributions of £4,000 (£5,000 with the maximum government bonus), it could make sense to use additional investment products, or it could be a while before you amass the money you need for a deposit.

As the LISA was launched in April 2017, nobody – J.P. Morgan Personal Investing customer or otherwise – is old enough yet to have used their LISA for retirement.

What if a house costs more than £450,000?

The average house price varies across the UK. According to Halifax, the average house price for first-time buyers in London came to £511,514 in 2024. This can be a problem for some buyers as LISAs cannot be used for homes worth more than £450,000, and they may be better off looking to other investment or savings products.

If you buy a property that costs more than £450,000 and you still want to use your LISA funds for the deposit, you will have to pay a 25% withdrawal charge. This means that for every £1,000 you saved or invested, plus the 25% government bonus – taking you to £1,250 – you’ll only get £937.50 back (without taking into account any returns on your investments or savings).

If you are looking to buy a home – or think it likely your first home might be above the £450,000 threshold – it might therefore be wise to consider investing in other products such as a Stocks and Shares ISA, for example with J.P. Morgan Personal Investing and perhaps in combination with a General Investment Account (GIA) instead of a LISA. You can invest up to £20,000 per tax year as part of your ISA allowance and pay no tax on any returns. There are no rules limiting what you can do with your savings withdrawn from a Stocks and Shares ISA, making it ideal for saving up to buy a first home that costs more than the LISA threshold. Our GIA is an easy, flexible way of investing more of your money in the markets on top of your £20,000 ISA allowance. It's worth noting that GIA returns may be taxable.

Even if you are buying a house above the LISA threshold, it can still make sense to have both a Stocks and Shares ISA and a LISA, both of which could serve as an effective vehicle for saving or investing for your retirement. Remember that your £20,000 ISA allowance applies across both products within the same tax year – you cannot invest £20,000 in a Stocks and Shares ISA and also use your full LISA allowance of £4,000 within the same tax year. 

Buying a second property

A second property might be a holiday home for rest and recuperation, or it might be part of an investment strategy. However you plan to use it, there are a few differences in tax rules between buying your first property and a second home. Also, for some investors, they may prefer to put their money to work in financial markets instead of managing a second property.

The LISA cannot be used to purchase a second property, so a Stocks and Shares ISA, along with a GIA, may be the optimal way to build the wealth required to buy a second home. You can take out a second mortgage to buy a second property, but you will typically need a large deposit – usually at least 25% of the value of the property, according to the HomeOwners Alliance, saving for which could be onerous on top of paying an existing mortgage. You will also need to prove to a lender that you can afford the repayments on two mortgages, offer details of any likely rental income if you plan to let out the property, and have a good credit score, the HomeOwners Alliance says.

The purchase of a second (or additional) property is subject to a higher rate of Stamp Duty, at a rate that is linked to the purchase price of the house. In addition, unlike your primary residence, if you sell a second property you will be liable for Capital Gains Tax (CGT), which is 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. Council tax can also be significantly higher on second homes.

Buying a second property isn't always straightforward, and tax rules can be complex so it is usually a good idea to get tax advice before beginning the process.

Using property to fund your retirement

You might consider having a buy-to-let property in addition to paying into a pension, as you’d be receiving a rental income as well as potential capital gains when you come to sell it. Using a property like a pension can work well in an environment when interest rates are low and house prices are rising.

But if you’re intending to use property to help fund your retirement, here are some points to note:

• The sale of your property could be subject to CGT on what you make, which will eat into any profit. You’ll need to declare any capital gains within 30 days of the sale. Capital growth in pension assets, on the other hand, are not subject to CGT.
• When you buy a property to rent, you may pay a higher rate of Stamp Duty than when buying a property to live in yourself.
• If you don’t sell a buy-to-let before you die, it could be subject to Inheritance Tax (IHT). The proceeds from a property sale could also be subject to IHT.
• Rentals come with outgoings like service charges, letting agent fees, landlords and buildings insurance, maintenance costs and the risk of no rent when the property is empty.
• Managing a property and your tenants takes time and commitment.
• Mortgage deals for buy-to-lets are not as attractive when interest rates are high.
• Property prices may go down, and you could even end up in negative equity.

While property can be a way of generating income for retirement, we believe that pensions are usually the best vehicle for retirement saving, while LISAs can also be very useful, in part because of the 25% government bonus that customers receive when saving into one.

Helping your child onto the property ladder

Over half of first-time buyers received financial support from their families when buying their homes in 2024, according to estate agency Savills, with 52% of those buying their first home getting help from the so-called ‘bank of mum and dad’. Parents gave an average of £55,572 in loans and gifts to their children to help them onto the property ladder for the first time.

You could use an ISA or GIA to help build the wealth required to pass on that amount of money to your children. You could also use the proceeds of a LISA once you’ve reached the age of 60. Similarly, you could draw down from your pension and pass on this money.

It’s important, however, first to ensure that you have enough money to fund your own retirement. Pensions UK estimates that a one-person household would spend £43,900 a year to enjoy a comfortable retirement of financial freedom and some luxuries. This rises to £60,600 every year for a two-person household.

You also need to be mindful of IHT rules surrounding gifting money. Money or assets that are given away more than seven years before you die are not counted as part of your estate for IHT purposes. 

You can also make use of an annual allowance to give away money each year that will not be included in IHT calculations, even if you die before seven years is up. You can currently give away a total of £3,000 per year that will not attract IHT.

One effective way of giving your children a headstart when it comes to saving for a house deposit could be to open a Stocks and Shares Junior ISA (JISA) for them. You can invest up to £9,000 a year per child on top of your own ISA allowance until they reach the age of 18, with no tax due on any returns. When they turn 18, the JISA automatically becomes a Stocks and Shares ISA in their name, and they could put these savings towards a house deposit. Bear in mind that J.P. Morgan Personal Investing JISAs need to be opened before a child's 16th birthday.

You could also buy the property yourself and gift it to your child, or gift them the deposit, although bear in mind that these approaches could be affected by IHT and other tax considerations.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Tax rules vary by individual status and may change. ISA/JISA/LISA eligibility rules apply.

With a LISA, if you need to withdraw the money before you’re 60, and it’s not for a qualifying purchase of a first home, you may pay a 25% government withdrawal charge.

If you choose to opt out of your workplace pension to pay into a LISA, you may lose the benefits of the employer-matched contributions. Your current and future entitlement to means-tested benefits may also be affected. 

J.P. Morgan Personal Investing does not provide tax advice. For personalised advice tailored to your specific situation please consult with a qualified tax adviser.