Fatwa ID: 05698

 

Answered by: Maulana Syed Johir Miah

 

Question:

 

Is this permissible?

 

You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA. You can put in up to £4,000 each year until you’re 50. You must make your first payment into your ISA before you’re 40. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2021 to 2022 tax year.

 

You can hold cash or stocks and shares in your Lifetime ISA, or have a combination of both. When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus. Your account will stay open and your savings will still earn interest or investment returns. To open and continue to pay into a Lifetime ISA you must be a resident in the UK, unless you’re a Crown servant (for example, in the diplomatic service), their spouse or civil partner. Withdrawing money from your Lifetime ISA. You can withdraw money from your ISA if you’re: buying your first home aged 60 or over terminally ill, with less than 12 months to live you’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (also known as making an unauthorised withdrawal). This recovers the government bonus you received on your original savings.

 

Example 1

 

Assuming no growth, initial savings of £800 will earn a 25% government bonus of £200 and give you a pot of £1,000. If you wish to withdraw the entire pot, a 25% charge will apply to the full £1,000. You’ll have to pay a government withdrawal charge of £250. This will leave you with £750.

 

If you only wish to access some of your money, you’ll have to take the withdrawal charge into account when requesting funds. You’ll have to withdraw more than the amount you need, to cover your needs and the 25% withdrawal charge.

 

Example 2

 

If you need enough cash to cover a £120 bill, you’ll have to withdraw more than you actually require. Withdrawing £160 means you pay a 25% withdrawal charge of £40, and receive £120 in cash to meet the bill.

 

If you’ve made an unauthorised withdrawal between 6 March 2020 and 5 April 2021. A reduced withdrawal charge of 20% was temporarily introduced from 6 March 2020 to 5 April 2021. If you’ve been charged a higher rate of 25%, the difference will be paid back into your Lifetime ISA. Contact your Lifetime ISA provider if this does not happen to buy your first home.

 

You can use your savings to help you buy your first home if all the following apply: the property costs £450,000 or less you buy the property at least 12 months after you make your first payment into the Lifetime ISA you use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them you’re buying with a mortgage. Buying with someone else. If the person you’re buying with has a Lifetime ISA, they can use their savings and government bonus too.

 

They’ll pay a 25% withdrawal charge to use their Lifetime ISA savings if they own or have a legal interest in the property (for example they’re a beneficiary of a trust that includes property).

 

If you have a Lifetime ISA and a Help to Buy ISA, you can only use the government bonus from one of them to buy your first home.

 

You can transfer money from a Help to Buy ISA to a Lifetime ISA. If you transfer money from a Lifetime ISA to a Help to Buy ISA you’ll have to pay the 25% withdrawal charge.

 

Saving for later life. You can take your savings out of a Lifetime ISA when you’re 60 or over. You’ll pay a 25% charge if you withdraw money or transfer the Lifetime ISA to another type of ISA before 60.

 

If you die your Lifetime ISA ends on the date of your death. There’s no charge to withdraw the funds or assets from your account.

 

A Lifetime ISA is one of a number of ways to save for later life.

 

 

In the name of Allah, the Most Gracious, the Most Merciful

 

Answer:

 

After looking into this matter deeply, it seems that “ISA (Individual Savings Account) is not compliant with Shariah as it has many factors which are contrary to the Shariah. The government adding a 25% bonus to the savings is similar to interest as it is a riskless profit on the saving and it is an underlying element of the ISA (Individual Savings Account).

 

Amongst the principles of ISA is that there is a 25% withdrawing charge if a person withdraws money before reaching the age of 60 and for other than purchasing the first home, as a result of which the customer will receive back less than the original saving amount.

 

As stated in the first example, a person has to pay a government withdrawal charge of £250 if he wishes to withdraw the entire pot.

 

If a person only wishes to access some of their money, they will have to take the withdrawal charge into account when requesting funds, which is interest.

 

Also stated in the second example, if a person needs enough cash to cover a £120 bill, they will have to withdraw more than they actually require. Withdrawing £160 means they pay a 25% withdrawal charge of £40 and receive £120 in cash to meet the bill.

 

In this scenario, the benefit is conditional on lending and therefore it is a loan that brings benefit, and if it is not conditional, then there is nothing wrong with it. [1]

 

Hence, Lifetime ISA (Individual Savings Account) would not be permissible.

 

 

Only Allah knows best.

Written by Maulana Syed Johir Miah

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham

 

 

 

[1]إن المنفعة إذا كانت مشروطة في الإقراض فهو قرض جر منفعة، وإن لم تكن مشروطة فلا بأس به

Mabsoot, Sarakhsee, 35/14, Darul M’arifah, Beirut, Lebanon, 1414 H.