The British ISA – what we know so far
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
Since the Chancellor announced plans for the British ISA in October 2023, speculation has abounded about what form it might take and which benefits it might offer. Below, our Grantham financial advisers at Castlegate explain what we know so far about the British ISA, how it could feature in a financial plan and some possible issues to address.
We hope these insights are useful. To discuss your own family financial plan with us, please get in touch to arrange a no-obligation financial consultation at our expense:
01476 855 585
info@casfin.co.uk
What is the British ISA?
The British ISA was described in broad terms earlier in 2024, during the delivery of the Spring Budget. The core idea is to allow investors to invest an additional £5,000 into their ISAs each tax year, provided this comprises UK assets (e.g. company shares).
This £5,000 allowance appears to be in addition to the existing £20,000 annual ISA allowance currently available to each UK tax resident. For instance, the new rules (when they are implemented) could allow an individual to contribute the following in a single tax year:
- £6,000 to their Cash ISA;
- £4,000 to their Lifetime ISA;
- £10,000 to a Stocks & Shares ISA in overseas investments (e.g. US-based equities);
- £5,000 to UK-based investments using a British ISA.
Therefore, the maximum ISA allowance would theoretically be £25,000 per year.
Why is the government planning a British ISA?
The UK economy has been suffering from a lack of investment for many years – particularly since the 2008-9 Financial Crisis. The reasons for this are complex, but explanations include austerity (leading to a lack of public sector investment) and political uncertainty.
Put bluntly; many businesses have been reluctant to invest in the UK when directors are not confident about the political landscape in the years ahead. Uncertainty about tax laws and regulations, for example, puts off corporate investment. The result is hindered economic growth as the UK’s aggregate demand (AD) is constrained.
The Chancellor seems to believe that the British ISA could be a vital stimulus to re-ignite confidence and interest in the UK. Retail investors can enjoy more of the tax benefits of a normal ISA (e.g. tax-free capital gains and dividends). In the process, UK-based companies could receive more investor funds to fuel their expansion projects.
Will the British ISA work?
Many investors will undoubtedly be interested in starting a British ISA. However, there has yet to be a confirmation of its arrival date. It may not be introduced until the 2025/26 tax year. At this point, a new government may also be in power, with a different approach to ISAs and tax laws.
Some scepticism exists about whether the British ISA will be as effective as the Chancellor’s advertisement. One criticism is that limiting investor choice to the British stock market is too narrow in scope. After all, the UK comprises only 4% of the value of global stocks.
Another issue is diversification. For example, nearly half of the FTSE All Share index comprises companies from just three sectors – financials, energy and consumer staples. As such, an investor who focused solely on building up a British ISA portfolio (not diversifying abroad) could expose themselves to sector and style risks.
Existing ISA providers also face challenges. The UK government hopes to direct billions of pounds into UK-based businesses over the coming five years. Those businesses offering ISAs will need time and careful planning to adapt accordingly.
Those are the main drawbacks. However, it is important to highlight the positive aspects of the story. The British ISA represents an innovative attempt to encourage UK investment and economic growth. After its refinement, the final form of this idea may eventually be different.
How might I use a British ISA?
Naturally, we cannot answer this question confidently until we know the full details of the British ISA. These were previously due in the summer of 2024 when the current consultation is expected to conclude. However, with the general election now confirmed for 4 July, the British ISA is arguably thrown into doubt.
It is worth noting that if elected, Labour has stated it will keep the Government’s plans for the British ISA. Yet the campaign is still getting underway in early June 2024. Policies, promises and manifestos may change before polling day.
As always, the best way to explore your ISA options is to sit down with an experienced financial adviser who can guide you in light of your unique goals and circumstances. It is likely better to work with the ISA system as it currently stands rather than trying to outguess the future.
Invitation
ISAs can be a vital part of a holistic financial plan, helping individuals build wealth in a tax-efficient manner. However, gaining a clear picture of the UK’s complex tax landscape on your own can be difficult. A professional can help you navigate these shifting sands with confidence, building a financial plan that you are happy with.
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
