Interactive Investor

Budget 2024: new ‘British ISA’ with extra £5,000 allowance

The British ISA will be a separate £5,000 annual allowance, on top of the existing £20,000 ISA allowance.

6th March 2024 13:07

Kyle Caldwell from interactive investor

A new ISA dedicated to UK companies will be made available to investors, it was announced today as part of Chancellor Jeremy Hunt's 2024 Budget.

The British ISA is part of government efforts to boost demand for UK businesses, following on from previous pension fund reforms that will see some providers increase investment in early-stage UK companies.

Under the British ISA investors will, as is the case with other ISAs, not pay any tax on capital gains or income. The new ISA will be a separate £5,000 annual allowance, on top of the existing £20,000 ISA allowance.

The government says the new ISA "will provide a new tax-free savings opportunity for people to invest in the UK, while supporting UK companies."

At this stage it is unclear whether the new ISA will just be for investing in UK shares, or if UK-focused funds and investment trusts will also be included. Moreover, it is unclear whether UK gilts or UK corporate bonds will also be eligible. 

There is also no date on when the new ISA will be made available, but it is unlikely to be imminent as the consultation period for the UK ISA runs from today until 6 June 2024. 

The government said: “The UK ISA will support savers and open up UK retail investment opportunities for individuals. The UK ISA will be a £5,000 allowance in addition to the existing ISA allowance and will be a new tax-free product for people to invest in UK-focused assets. The government will consult on the details.”

The launch of the British ISA harks back to its predecessor – the personal equity plan (PEP) – which was exclusively for UK shares or funds and investments that had most of their assets in the UK or European Union. ISAs replaced PEPs in 1999.

It is hoped the new ISA will revive the fortunes of the UK stock market, which has been out of favour with fund investors since the UK voted to leave the European Union in June 2016.

Data from the Investment Association, the trade body for the funds industry, shows that since 2016 the UK All Companies sector has been the least popular on four occasions (2016, 2017, 2018 and 2022), while UK Equity Income took the unwanted accolade of worst seller in 2021.

The British ISA gained plenty of support from fund management firms ahead of today's announcement. Among those that lobbied the government for its creation were Premier Miton. Mike O’Shea, chief executive of Premier Miton, said: “Ensuring companies have access to the capital they need will encourage them to scale up and list here in the UK. This will mean that companies’ headquarters, and all the associated high-paying roles, tax receipts and international prestige, remain here in the UK.”

“At Premier Miton Investors, we think more British savings should be going into British companies. Our proposal, for a Great British ISA, would sit alongside other existing ISAs, and help retail savers invest directly in listed UK equities.

Commenting on today’s announcement Natalie Bell, a fund manager at Liontrust, said she thinks the new British ISA “will be an important catalyst to help reverse the trend of persistent outflows experienced by UK equity markets for a number of years.”

She added: “It sends a vital message that the government stands ready to back British companies, directing a proportion of taxpayer-subsidised investment towards improving employment, growth and productivity here in the UK.”

The British ISA announcement today follows on from a flurry of ISA rule changes that were made in November’s Autumn Statement.

The main change is that from the start of the new tax year – 6 April  – the government will allow multiple subscriptions to ISAs of the same type. Under the current rules, you can only open one type of ISA each tax year: cash, stocks and shares, or innovative finance. There’s also the Help to Buy ISA, but this is no longer available for new subscribers.

Another ISA rule change kicking in next month will allow Long-Term Asset Funds (LTAFs) to be permitted investments in the Innovative Finance ISA. LTAFs, a new type of fund structure that has been recently introduced, invest in illiquid assets including real estate and infrastructure, venture capital, private equity and private debt.

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