UK Isa: Everything you need to know – from when it will arrive to which investments count

The Chancellor’s announcement that a new UK Isa will be rolled out to investors has raised many questions.

Many will be wondering which investments are eligible, when the extra £5,000 UK Isa benefit will arrive and who will benefit from it.

It also drew criticism from some financial experts, with one labeling it a “politically motivated stunt in the run-up to the upcoming elections, rather than a well-considered strategy aimed at sustainable economic growth.”

But while some in the investment industry are questioning the UK Isa announcement in the Budget, investors are keen to know more about how they can secure an extra £5,000 tax-free Isa benefit.

Here’s everything we know so far about the British Isa.

What is the British Isa?

The UK Isa is a new type of Isa that allows savers to invest £5,000 per year in UK assets tax-free.

Brits can currently save or invest £20,000 in cash, stocks or shares through an Isa each tax year without paying tax on the profits.

The UK Isa would allow people to invest a further £5,000 on top of the existing allowance, but only in UK assets.

> Essential Isa guide: What you need to know about tax-free saving and investing

When could the British Isa arrive?

A consultation on the design and delivery of the British Isa has now started and will run until June 6.

Until then, the government is inviting responses to the consultation, so savers will only see any action on the British Isa after that point.

When the consultations end, the government will have to assess the responses and adopt final rules. The earliest we might know what these rules look like is later in 2024. Providers then need time to build a new product.

According to investment platform AJ Bell, April 2025 is likely the earliest possible date it will be available to customers.

That will of course be after the general election, so the arrival of the British Isa depends on whether both parties commit to it and who comes to power.

What investments may be eligible for a British Isa?

The Chancellor’s UK Isa announcement immediately raised questions about what counts as a UK company.

The announcement was quickly followed by a consultation paper setting out various ways in which investments eligible for the UK Isa could be defined.

“At this time it appears that all UK listed shares will be eligible, such as those traded on the London Stock Exchange, as well as those listed on the AIM smaller company market,” a spokesperson for A. J. Bell.

The consultation shows that ordinary shares, collective investment vehicles, corporate bonds, government bonds and cash could potentially fall under the list.

As a starting point, the government suggested it could replicate some of the previous approaches to Personal Equity Plans (PEPs) for the UK Isa.

PEPs were a tax-free wrapper to hold investments, discontinued in 1999 and replaced by Isas.

One such proposal is to include all ordinary shares of companies incorporated in Britain and listed on a UK stock exchange.

The issue of investment confidence

Investment trusts are a form of pooling investors’ money to purchase other assets, similar to mutual funds, but in a crucial difference they are themselves listed on the stock market.

That means all investment trusts are technically UK-listed shares, which could open the door to shares like Scottish Mortgage, which invest largely abroad, essentially amounting to a UK Isa.

When it comes to collective investment vehicles, such as investment trusts, the government is considering whether inclusion in the UK Isa should be limited to those institutions that invest at least 75 percent of their assets in Britain, as the old PEP rules allowed.

However, this would prevent all listed closed-end funds from being eligible for the UK Isa.

Another proposal is that all UK listed companies would be eligible for inclusion (including those listed on the Main Market of the London Stock Exchange, AIM, Aquis and Cboe Europe).

Nick Britton, director of research and content at the Association of Investment Companies (AIC), said: This would be a simple, straightforward approach that would help support the UK’s capital markets and provide investors with access to diversified portfolios (investment companies) alongside trading companies. shares.

‘Investment companies represent over a third of the FTSE 250 and are simply too large a part of the UK market to ignore.’

The AIC’s chief executive, Richard Stone, added: ‘All UK-listed shares, including investment companies, should be eligible for the UK Isa.’

Is it in the same account or in a separate UK Isa?

Just when you thought Isas was meant to be simplified, along comes another story.#

As set out in the consultation, the UK Isa will be a new Isa with its own annual allowance of £5,000, in addition to the existing annual Isa allowance of £20,000.

This would complement the other main types: shares Isas, cash Isas and lifetime Isas.

A spokesperson for stockbroker AJ Bell said: ‘This will be separate from existing Isas. At the moment everyone has an Isa allowance of £20,000, which you can use across the range of Isa products available, including stocks and shares Isas, cash Isas and Lifetime Isas.”

The UK Isa would be a new addition, with an extra £5,000, bringing the total Isa benefit to £25,000 per year.

The UK Isa could allow subscriptions to a number of different UK Isas in the same tax year, keeping it in line with other Isas and offering investors more choice.

Because the UK annual Isa fee is lower than the general annual Isa fee, it could be simpler for investors if they are only allowed to subscribe to one UK Isa in a tax year, the consultation said.

How many people could benefit from this?

One of the arguments against the UK Isa is that not nearly enough people use their £20,000 Isa limit to begin with. As a result, this change will only benefit those who have already reached their Isa limit, and those who want to focus on domestic investment.

According to investment platform AJ Bell, around 800,000 people use their maximum annual Isa allowance by investing in stocks and shares Isas in a given year.

With this in mind, it seems that the new UK Isa will only appeal to those who are currently maxing out their Isa limits, leaving room for an additional £5,000 tax-free saving.

It will also benefit people with savings outside an Isa, many of whom will now pay tax on the interest.

Michael Summersgill, CEO of AJ Bell, said: ‘A small minority of people take out up to £20,000 each year from their Isa allowance, but these are the only ones who will see any benefit from the extra UK Isa allowance.

‘In the context of the UK stock market being over £2 trillion, any additional investment generated by these investors through the UK Isa will be a rounding error.’

How would this boost the UK stock market?

Consultations on a new UK ISA come alongside other measures to boost UK financial markets and the wider economy.

It follows on from previous reforms to pension funds, which will see some providers increase their investments in early-stage British companies.

“Isas represent a significant savings pool and the Chancellor hopes he can encourage people to buy UK shares,” said Mike Ambery, director of pension savings at Standard Life.

Mike O’Shea, CEO of Premier Miton Global Investors said: ‘Ensuring businesses have access to the capital they need will encourage them to scale up and list here in Britain.

‘The UK Isa is a crucial step in recapitalizing UK companies and making the UK listing regime the global capital capital.’

In theory, the UK Isa could provide a boost to UK shares if a large number of investors start pouring extra money into UK shares, driving up prices.

But some financial experts believe the UK Isa is doomed to fail in its aim to boost the UK stock market.

Of the money customers currently invest in their stocks and shares Isas, 50 percent goes into UK assets, according to AJ Bell.

Michael Summersgill said: ‘If the aim is to boost investment in UK businesses, the answer lies elsewhere.

‘For example, extending the existing AIM exemption from stamp duty and/or inheritance tax to a wider set of UK assets would actually have a meaningful impact.’