Written By Nicola Glass
The British ISA (or UK ISA) was announced by Chancellor Jeremy Hunt in the 2024 Spring Budget, and could offer further valuable saving opportunities for some, following what has been a challenging time for UK investors.
Challenges for British Investors
Britain went into the 2024 general election with taxes at their highest level since 1948 and, according to ONS data, the UK tax as a share of GDP is forecast to rise to 37.1% of GDP in 2028-29.
As an independent financial advisory team, Integrity365 have been discussing ways in which we can help our clients combat these rising tax rates, alongside the increased costs of energy, food and services.
Another key challenge has been the continued reduction of the Capital Gains Tax (CGT) Allowance, which was cut further from £6,000 per annum to £3,000 per annum as of April 2024, therefore reducing the amount of Capital Gains you can withdraw tax-free when selling an asset – such as a share portfolio or second home.
To put this into perspective, a client would only need £60,000 in a general investment portfolio achieving an average of 5% growth per annum to make £3,000 profit in one tax year. Whilst this is not chargeable until the gain has been crystallised, it will push many previously tax-sheltered clients into chargeable territory. The falling threshold will, in turn, make tax wrappers more attractive and drive many to look at alternative investment options.
Introducing the British ISA
The Spring Budget 2024 did, however, offer some welcome changes which could be beneficial in these circumstances, including the British ISA which offers tax-free investment into UK shares. British ISAs are not planned to form part of the current £20,000 annual ISA allowance. Instead, the British ISA is planned to have a new allowance on top of this of £5,000, providing the contribution is invested in UK companies.
Although the launch date is yet to be announced for the British ISA, some experts have predicted that this could be available as early as April 2025. However, in this situation, these would not be rolled out for use within the 2024/25 tax year.
A consultation process on the specifics of how it is to be implemented has been running up until 6th June 2024. The Government invited responses to the consultation until that point, so savers would not see any action on the British ISA until after these have been considered.
Further ISA changes also offer new opportunities to savers, as top-ups have become more flexible. Previously, once you had invested part of your ISA allowance in a Cash or Stocks and Shares ISA, then subsequent investments in the same tax year had to be with the same cash or investment provider.
As of the 2024/25 tax year, you can now pay into as many different ISAs with as many different providers as you like, provided the total amounts invested do not exceed the Annual Allowance of £20,000.
Once in force, the extra £5,000 British ISA allowance could prove valuable to those already utilising their full ISA allowance each year and looking to shelter from future taxation on investments. It will be interesting to see what products become available in time, but a built-in risk will be the inherent nature of the product, UK investments only. According to PWCs Global Economy Watch, the United Kingdom constitutes 2.3% of world GDP by purchasing power parity.
Therefore, it may be appropriate to amend existing asset allocations to account for this home bias and so we recommend you speak with your financial adviser before starting to save into a ‘Great British ISA’.
In any case, with improving portfolio returns and reducing tax-free allowances, the need to optimise your tax wrappers is increasingly important which an Integrity365 Independent Financial Adviser would be more than happy to discuss. Get in touch today on 0117 450 1300.
Written By Nicola Glass
