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What is the British ISA and how might it affect you?

What is the British ISA? Image shows a Union Jack with Big Ben's clock face in the background.

The British ISA, announced in the Spring Budget, is now expected to be delayed until after the general election, most likely becoming available in April 2025. But what is the new ISA, and what will it mean for your investment planning? George Square provides further details.

What is the British ISA?

The British ISA is a new £5,000 allowance that offers tax-free investment in UK shares. Current ISAs offer a place to put up to £20,000 worth of savings without paying tax on the interest. The new British ISA pushes that limit to £25,000.

While most people do not max out the existing £20,000 cap, for those who do, this extra £5,000 is an added bonus.

There is no set launch date for the British ISA yet, and there are many clarifications that need to be made before it gets the green light.

What qualifies as a UK investment?

Announcing his proposals in the Spring Budget, Chancellor Jeremy Hunt said: “Following calls from over 200 representatives of the City and our high-growth sectors, I will reform the ISA system to encourage more people to invest in UK assets.” But what would be considered as a UK asset is a key area that needs to be clarified.

One definition could be where the shares are listed. This is a fairly simple way to set the rules as it could just mean stocks listed in the FTSE 350, for example. Where it could get more complicated is whether the specifics of where and how a company does business are incorporated. For example, if a company is listed in the FTSE 350 but mainly does business abroad, it may not count.

The pros and cons

The British ISA offers some key advantages. Firstly, it lowers taxes on investment earnings, whether from capital gains or dividends, putting more money in individuals’ pockets, which is generally a good thing for the economy. Secondly, it promotes investment in UK shares; a healthy, rising UK stock market is often seen as a positive for the economy, and also helps people with investment portfolios or pension pots holding the shares.*

A boost in tax-free investment limits may be particularly beneficial for individuals over 50, who are typically the most active investors, often utilising ISAs for retirement funds.

Consequently, the British ISA might incentivise further retirement savings, which can only be a good thing.

The primary criticism of the policy is that it imposes restrictions on investors’ choices. Given that the UK stock market represents less than 4% of the global market, confining investors to this fraction, even with just a £5,000 allowance, is arguably highly restrictive. Additionally, since many people don’t fully use their £20,000 allowance, the extra £5,000 might be unnecessary for them.

Ultimately, while any extension to tax-free allowances will always be welcomed, there are definite question marks over both the number of people that will benefit from the British ISA, and the difference it will truly make to the UK economy.

Impartial investment advice

George Square Financial Management provides comprehensive, impartial investment advice. We excel at analysing your existing portfolio, assessing how this can best be optimised, restructured or better managed – often in a more tax efficient or cost effective manner. We can also guide you through tough financial climates such as during an economic downturn.

For more information about how to maximise your tax free allowances, please speak to our team today.

*Please note: there is no guarantee that markets will rise and they can fall,  therefore you may not get back the full amount invested when encashing an ISA.

For more information about how to maximise your tax free allowances, please speak to our team today.

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