The First Time Buyer ISA (FTB ISA) will include a government bonus that buyers receive at the point of withdrawal when purchasing a first home.
The government responded to evidence that LISAs do not work well for many people, and described the LISA as a flawed product.
The government aims to make both cash and stocks and shares ISA versions of the product available, with the government paying the bonus on net subscriptions.
Managing the ISA
As with previous products, ISA managers will be able to set their own rates of interest and offer their own investment products or portfolios.
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An individual will subscribe to the FTB ISA up to the annual subscription limit, which will be eligible for a government bonus but will not be paid out immediately.
As an individual continues to subscribe, their eligible government bonus grows. Once they are ready to purchase their first property, they can use the bonus towards their house deposit, alongside the funds they have subscribed.
Where possible, the government will replicate the LISA and Help to Buy ISA frameworks.
Managers will have to report details, such as subscriptions and transfers, to HMRC via ISA reporting systems. They must ensure individuals do not exceed ISA subscription limits.
Conveyancers will take primary responsibility for ensuring compliance, as the government expects them to have access to all the relevant information. This includes the mortgage offer, proof of funds and confirmation that the individual is a first-time buyer.
They must complete a Conveyancers Declaration Form, confirming several criteria, such as that the individual and property qualify for the bonus and that the buyer is making the purchase alongside a mortgage.
Government bonus
HMRC will pay the bonus subject to the buyer completing the property purchase within 90 days.
HMRC will calculate it as a percentage of subscriptions made, rather than the value of the account.
For the bonus to be claimed, the conveyancer will notify the FTB ISA manager of the buyer’s intention to withdraw funds, after which the manager will claim the funds from HMRC and release them to the conveyancer.
Transfer rules for interaction with other ISAs
To prevent people from circumventing ISA limit rules and risking bonus eligibility, the government has proposed a new transfer regime.
The government will permit transfers between cash-based ISAs, including cash ISAs and cash FTB ISAs.
It will allow transfers between stocks and shares ISA products, including stocks and shares ISAs and stocks and shares FTB ISAs.
Furthermore, the government will permit transfers from cash-based ISA products to stocks and shares-based ISA products.
However, the government will ban transfers from stocks and shares-based ISA products.
The government has yet to confirm the property price cap, but it will match those of the LISA and Help to Buy ISA.
