Andrea Steel provides an introduction to this proposed addition to ISA allowances.

While the reduction to National Insurance rates captured the headlines, another measure announced in the Spring 2024 Budget was the introduction of the British ISA. This will offer an additional £5,000 ISA allowance for anyone wishing to invest in British assets.

The intention is to stimulate growth in the British economy while rewarding investors for buying local.

Full details are still to be announced, and the proposals are still at the consultation stage. Below, we outline what we know so far. 

The current ISA rules

The current ISA regime has been around since 1999, with allowances remaining unchanged since 2017. The main rules are as follows:

  • You can contribute up to £20,000 to an ISA.
  • You can use your ISA to hold cash, stocks and shares, or a mix of both.
  • All income and growth generated by an ISA is tax-free, and you can usually withdraw your money without restriction or penalty (unless you have specifically bought a product with a fixed term).
  • If you take money out of your ISA, you can replace it in the same tax year without using up any of your allowance*
  • ISAs can be transferred between managers, and you can switch between cash and stocks & shares.
  • ISAs can be transferred to a spouse on death via an Additional Permitted Subscription. 

ISAs are highly tax-efficient, and along with pensions, form an essential building block in a sensible investment plan. 

How will the British ISA work?

Details are still light on how the scheme will actually work. What we know is that investors will have an additional allowance of £5,000 to invest only in British assets. This effectively increases the ISA allowance to £25,000. 

The likelihood is that the British ISA will not be incorporated into existing stocks and shares ISAs, but will be introduced as a new, separate savings wrapper. This means that an investor could theoretically have up to four different ISAs – cash, stocks & shares, a Lifetime ISA, and a British ISA.

A consultation to nail down the specifics closed on 6th June 2024 so it is now a question of waiting for the results. 

Details still to be confirmed

Firstly, between the consultation period and the now-confirmed general election, nothing is certain. The British ISA is simply an idea at this point, with no certainty over if, or when, it will come to fruition.

If it does pass into legislation, it is likely to be available from no earlier than April 2025. Some providers may choose not to offer this option to investors, and others might not enter the market right away. There is also some uncertainty over what the scheme can invest in. Shares in listed British companies are likely to be on the list, and it has also been indicated that shares listed on the AIM market could also qualify.

It is possible that collective funds, such as OEICs, corporate bonds, gilts and possibly even cash in British institutions, could also qualify. There is some uncertainty over investment trusts, as these are technically listed British companies that can invest in a wide range of global assets – it is likely that some controls will be put in place to limit the underlying investments that can be accessed.

Transfer rules are also yet to be announced. Transferring an existing ISA to a British ISA is likely to be counterproductive, as you could buy the same assets within a standard ISA. However, if it is possible to transfer out of a British ISA, investors could take advantage of the increased allowance before moving their money elsewhere to access more investment options. This might be good for investors, but defeats the purpose of encouraging investment into the British economy. 

* Flexible ISAs only.


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Important Information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment arrangements.

Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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