What is the British ISA?

In the recent Spring Budget, a new British ISA was announced, offering the chance to invest an additional £5,000 a year tax free in UK assets.

This is on top of the existing allowance to put £20,000 in cash or shares – home or overseas – in each tax year. However, its introduction has sparked both enthusiasm and scepticism, with its impact yet to unfold.

What do we know so far?

• There’s no set date for when it will be available – the government aims to gather input from existing ISA providers to understand their interest and requirements for offering this new product. If approved, it will likely not be available until the 2025/26 tax year.
• It may have limited choice– at the moment we presume investments such as ordinary shares, collective investment vehicles, corporate bonds will be available but details haven’t been confirmed.

The controversies surrounding the British ISA are as follow:

• Limited investment scope: Critics argue that the policy restricts investors to the UK stock market, which constitutes less than 4% of the global stock market. This limitation, even though it applies to only £5,000, is seen as overly restrictive
• Investment dictation: Some view the British ISA as dictating where people can invest. By focusing solely on UK shares, it may hinder diversification and limit exposure to global opportunities and could be viewed as higher risk that a well diversified global portfolio
• Implementation challenges: While the government aims to direct up to £200 billion into UK businesses over five years, implementing the British ISA poses challenges. Existing ISA providers need time to adapt and consider offering this new product

On the other side of the spectrum, supporters believe it could boost investment in UK companies, especially among the 8 million people with investible assets held largely in cash.

Our comments on the British ISA

Tilting your portfolio to the UK also creates sector and style risks. Around half the value of the FTSE All Share index is accounted for by just three sectors – financials, energy and consumer staples.

Therefore, whilst the additional allowance appears to be attractive, we are currently reviewing the overall planning opportunity available to our clients in terms of investment and risk exposure.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.