A new British Isa will give savers the chance to invest an additional £5,000 a year tax free in UK assets, the Chancellor announced today.
The move to get investors to ‘buy British’ will extend the Isa allowance from the current £20,000, and is expected to appeal to people who already max out their limit and those who want to focus on domestic investments.
The consultation on a new British Isa comes alongside other measures to boost UK financial markets and the wider economy.
British Isa: Will you use the new £5k allowance to invest in UK businesses?
Chancellor Jeremy Hunt’s Mansion House reforms are aimed at using people’s pension savings to boost UK growth, and it emerged at the weekend that pension funds will be forced in future to reveal how much of savers’ cash they invest in British businesses.
Meanwhile, the British Isa is expected to see pushback from some financial experts, one of whom dubbed it ‘likely a politically motivated stunt ahead of upcoming elections, rather than a well-considered strategy aimed at sustainable economic growth’.
Another stressed that the consultation must create an ‘unambiguous definition of what qualifies as a UK investment’ within a British Isa.
Meanwhile, investors could arguably get better returns by investing globally rather than skewing their holdings towards domestic markets.
And many savers do not use their full Isa allowance at present, or put their money in cash Isas rather than stocks and shares Isas. So, the target audience might be better off, experienced investors who already have significant portfolios.
‘Isas represent a significant pool of savings and the Chancellor is hoping he can encourage people to buy British,’ said Mike Ambery, retirement savings director at Standard Life.
‘The big question is whether today’s incentive will be enough to encourage people to invest at home.
‘Rising interest rates have made the returns on cash Isas much more attractive and among those who are willing to invest, there are many markets to choose from with the US in particular having performed strongly in recent years.
‘One factor working in the Chancellor’s favour is the growing number of people with cash savings outside of an Isa many of who will now be paying tax on the interest.
‘As with the wider ‘Mansion House’ scheme, the emphasis on UK growth has the potential to benefit us all but it’s crucial that good outcomes for savers remain at the centre of any investment decisions irrespective of the investment type selected.
‘As ever, maintaining a diversified portfolio of savings and investments is a sensible way to work towards both short and longer-term financial goals.’
Steven Cameron, pensions director at Aegon, said: ‘The new British Isa will appeal to those who currently max out their Isa limits, providing scope for an extra £5,000 tax-free saving.
‘It will also offer transparency, appealing to those who wish to be certain their investment is staying within the UK.
‘It will be important the forthcoming consultation creates an unambiguous definition of what qualifies as a UK investment within a ‘British Isa’.
‘Investors should however be mindful about putting all their ‘eggs in one basket’.
‘Diversifying across different asset types and geographical locations can be an important way of managing investment risk, something which should be emphasised to potential investors.’
Rachael Griffin, tax and financial planning expert at Quilter, said: ‘The Government has gone ahead with opening a consultation into the creation of a British Isa, despite receiving criticism before the Budget.
‘While the measure is touted as a boon for invigorating the UK stock market by encouraging investment in domestic equities, the introduction of this new Isa allowance raises significant implementation challenges and serves to further complicate the once-simple Isa brand.
‘So few people use their total Isa allowance in a given tax year too so the allure of £5,000 more is only appealing to much higher net worth people. The reality is we need to better incentivise the millions languishing in cash Isa accounts to be put to work in the stock market.
‘While the British Isa is presented as a strategic move to bolster the UK stock market and economy, it is fraught with potential pitfalls and may not address the root causes of the challenges facing the UK’s financial sector.
‘The measure is likely a politically motivated stunt ahead of upcoming elections, rather than a well-considered strategy aimed at sustainable economic growth.’
