Chancellor of the Exchequer Jeremy Hunt today announced plans for a new type of ISA as part of the 2024 Spring Budget. The new scheme would offer the public the chance to invest a further £5,000 tax-free on top of the £20,000 ISA allowance, but only into UK equities. It is currently in a consultation phase until 6 June, with no dates announced on when it could be launched.
The announcement comes as London battles a growing trend of businesses moving to rival financial powerhouses, including New York, Paris and Frankfurt. Hunt said that the new ISA would allow the public to “benefit from the growth of the most promising UK businesses as well as supporting them with the capital to help them expand”. This potential extra capital could be enough to tempt companies to stay put, though many will see the continuation of the 0.5% stamp duty rate for direct share purchases as an ongoing issue.
As well as helping businesses, the British ISA should also be a win for savers. An extra £5,000 allowance to invest tax free can be expected to draw headlines and could prove to be a money-saver for certain investors. However, only a small section of UK savers maximise their ISA allowance each year anyway, so the boost is unlikely to have a wide-reaching effect.
There was also no announcement on the specifics of the plan, such as whether it would apply to just UK shares or more broadly to UK-focused funds, investment trusts or bonds. These specifics will likely be worked out during the consultation phase and we will update this article with more information when it is available.
What is an ISA?
An ISA is a form of savings account that protects any interest you earn and any investment returns from tax. You can currently add up to £20,000 each tax year across any ISAs you hold. There is no limit on how many you can have, but currently you can only pay into one of each type per year, though this particular restriction is being removed from 6th April 2024. Currently, the main types of ISA are a Cash ISA, a Stocks and Shares ISA, a Lifetime ISA and an Innovative Finance ISA. We explain more in our article ‘The different types of ISA explained’.
What are the benefits of a UK ISA?
Savers and investors can already focus their attention on British companies, so the major advantage of a British ISA to the general public will be the additional allowance. In reality, it is likely to only really benefit those who are able to max out their ISA allowance each year, which is a relatively small proportion of UK savers and investors. For those hitting the limit, being able to invest an additional £5,000 tax-free will likely be welcomed. The amount it is likely to save you in tax will ultimately depend on your income and how much you currently earn on your savings and investments.
Many investors will welcome the changes, but there will also be frustrations that the 0.5% stamp duty rate for direct share purchases remains, along with cuts to the capital gains exemption and the amount of dividend income that can be received tax free.
For businesses, there are questions over whether the current plans would in fact lead to more money being invested into UK equities. The change would result in at least 20% of an individual's total ISA allowance needing to go to a British ISA, but investors may already have more than this amount in qualifying investments. It could mean that instead of injecting more capital into UK businesses, investors might simply redistribute their UK holdings in their existing ISAs into the new British ISA, then opting to invest elsewhere whilst maximising the tax benefits.
What else was announced in the 2024 Budget?
We have a full list of all the major changes you need to be aware of following the announcements in the 2024 Spring Budget. Head over to our article ‘Spring Budget 2024 - How does it impact you?’ for more information.
