The British ISA
What is It?
In the Budget speech delivered on the 6th of March, the UK Chancellor of the Exchequer announced the introduction of a new tax efficient saving wrapper, the British Investment Savings Account (British ISA). It will allow an additional £5,000 annual investment on top of the existing individual £20,000 ISA allowance, with the same tax advantages of a typical ISA, but with the restriction that the money will have to be directed towards UK investments.
A consultation has now been launched by the UK government (expected to be concluded by June this year), aiming at defining both the scope of the British ISA in terms of eligible assets and what constitutes a UK asset and/or company. In terms of eligible assets, it is expected that listed companies’ ordinary shares, collective investment vehicles, corporate bonds, gilts and cash should all be eligible.
What is the Rationale?
The London Stock Exchange has been around for well over 200 years, and at the beginning of the 20th century it was the largest stock market in the world, with a relative size of over 24% of combined world stock markets.
As of 2024, its relative size has shrunk to around 4%, not much larger than the French and German stock markets, and smaller than the Japanese one.
There are many reasons for this vastly diminished role.
One interesting point to note is how UK based institutional investors, such as pension funds, have progressively reduced investments in the UK stock market.
In addition, many home-grown companies (especially in the technology sector) tend to prefer to list on overseas stock markets such as the US, the largest and most liquid in the world.
Hence the need to try and find a way to boost the relatively shrinking UK domestic stock market by incentivising investments into UK assets via a tax-sheltered vehicle like the British ISA which, by encouraging investments into British companies, should also be beneficial for the growth of the UK economy.
Is It Worth It?
Roughly 800,000 investors each year fully use up the individual £20,000 annual ISA allowance, therefore an extra £5,000 annual allowance, thanks to the introduction of the British ISA, could potentially add an annual extra £4billion worth of investment. This amount might pale in comparison with the overall absolute size of the UK stock market, however it should not be discounted either, particularly if directed towards smaller UK companies.
Other critics of the proposal point towards the lack of diversification in terms of geographical markets as the British ISA is restricted to UK investments only, potentially generating what in jargon is termed a “home bias”.
On the face of it this looks like a valid concern, however, it is mitigated by the fact the 80% circa of revenues generated by companies listed on the FTSE 100 index come from overseas, and about 57% for small and medium size companies listed on the FTSE 250 index.
The introduction of the British ISA alongside the already existing ISAs has the potential to increase confusion according to some commentators. In reality, it is probably another tool than can be used in client specific, tailor-made financial planning scenarios. Better to have more options than fewer.
Overall, the introduction of the British ISA appears to be a positive innovation, intended to help both the growth of the UK economy and the continuing relevance of the UK stock market.
Speak to an Expert Financial Investment Advisor Today!
ISA investing is tax efficient and should form part of your wider investment philosophy, but there are a lot of options out there. To avoid confusion, understand the risks, and make smart investment decisions, it is always better to seek investment advice from a qualified financial professional.
Our team of investment experts can help you make measured and informed decisions with your investment portfolio. We have KLO offices in London, Birmingham, and Warwick, so get in touch today and find out whether a British ISA could be right for you. Call our head office on 01926 492 406 or email us at enquiries@klofinancialservices.com to find out more!
Disclaimer
Any research is for information purposes only and does not constitute financial advice. The value of investments and any income from them may go down as well as up, so you may get back less than you invested. Past performance cannot be relied upon as a guide to future performance. KLO Financial Services Ltd are registered in the UK, company number 08711328. We are authorised and regulated by the Financial Conduct Authority, reference 710272. For any information please visit our website www.klofinancialservices.com