What can we expect from the new British ISA? 5 interesting questions, answered

Category: News & United Kingdom

The “British ISA”, unveiled by the chancellor Jeremy Hunt in his 2024 Budget, is intended to encourage personal investment in UK-focused assets.

The chancellor’s announcement of this new ISA option has already prompted many questions in the financial media and, indeed, from our clients to us.

In this article, you can find out more about the questions that are being asked, and our assessment, based on what we know so far, of this new tax-efficient investment option.

1. How will the British ISA work?

The aim of ISAs generally is to encourage people to save and invest money in a highly tax-efficient savings and investment vehicle.

If you are over 18, you can currently save or invest £20,000 (2024/25 tax year) in cash or stocks and shares in each tax year, regardless of how much you earn. You are not liable for tax on any interest or investment growth in your ISA, or on any money you draw from your fund.

The British ISA expands on this facility, but with the additional intention of attracting investment into UK-based companies and assets.

It will do this by providing an additional annual £5,000 allowance on top of the existing £20,000 you can currently contribute.

2. When will I be able to invest in a British ISA?

Because an additional annual ISA entitlement of £5,000 is seen as a popular initiative, it’s understandable that the UK government are hoping to get the British ISA up and running quickly.

After the Budget statement, the government started a consultation process that is due to run until 6 June.

Once the government has assessed the responses, it will then publish the final rules and providers will be able to start offering up British ISA funds.

Although the more agile providers may be able to respond more quickly, logic would dictate the new ISA option will probably be available from the start of the 2025/26 tax year at the earliest.

One point to note is that the potential launch date will be after the general election, so the final form of a new British ISA may be dependent on who gets into power.

3. What investment choices will be available?

In the immediate aftermath of the chancellor’s announcement, there have been questions over what counts as a “UK-focused asset” and, as a result, what investment choices will be available.

For example, the consultation document suggests that ordinary shares that are UK-listed, corporate bonds, and gilts could all be considered as UK-based investments and potentially included in a British ISA.

To support the chancellor’s stated aim of wanting to encourage investment in UK companies, we would expect that, at least initially, there will be parameters around acceptable investments that ISA providers will need to adhere to.

The dual intention will likely be to support UK markets and offer potential British ISA investors access to investment company funds as well as company shares.

4. How will the British ISA work with other ISA options?

At the current time, you have a choice of four types of ISA account that you can contribute to in your own name:

  • A Cash ISA, which is like a traditional savings account
  • A Stocks and Shares ISA, through which you can invest your money in different types of assets
  • An Innovative Finance ISA, where your money is put on a lending platform, so you receive the interest paid by the borrower
  • A Lifetime ISA (LISA) for anyone aged 18-40 saving a deposit for a first house purchase or towards retirement.

It would appear that the British ISA will effectively function as an extension of the Stocks and Shares ISA, though we will need to await the outcome of the consultation and read the final rules before we can be sure of this.

5. Why should I invest in a British ISA?

ISAs are a highly tax-efficient way to save and invest your money, so it can often make sound financial sense to make full use of your annual allowance if you are able to.

From an investment perspective, the investment growth you enjoy in your Stocks and Shares ISA is exempt from Capital Gains Tax (CGT) so an additional £5,000 ISA contribution would increase the amount you can invest tax-efficiently to £25,000 each year.

You can already invest all of your £20,000 through a Stocks and Shares ISA, so the new option will only benefit you if you already max out your ISA limit and are happy to focus on domestic investments.

However, it’s important to note that if you invest in an ISA and plan to move or return to Australia at some point, those ISA assets will become taxable if you become a permanent Australian resident.

Find out more: If you’re an Australian resident ISAs and General Investment Accounts could create tax issues for you

What could you do with your ISAs and other investments if you move to Australia

Get in touch

If you would like to talk about your ISA contributions, or your investment strategy more generally, please get in touch with us.

Please note

The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of HMRC legislation, which is subject to change.