Jeremy Hunt is aiming to invigorate UK public markets with an additional £5,000 ISA allowance.
Jeremy Hunt has introduced a new British ISA in his Spring Budget, which will allow an additional £5,000 ISA allowance for investment in ‘promising UK businesses’.
The new ISA allowance will sit alongside the £20,000 that can be invested across other ISA wrappers currently available.
A consultation setting out the proposals asks investors which assets should be included in the extra allowance. Options on the table include UK shares and funds, as well as corporate bonds and even gilts. Cash instruments will be excluded though.
The consultation also asks for views on limits to transferring into a British ISA from existing ISAs.
The chancellor said he spoke to 200 City representatives before drawing up the plans.
Asset managers have supported plans to boost investments in UK companies.
‘There is cross-party recognition the UK isn’t doing enough to encourage investors to support British business and that London risks becoming a less attractive place to list,’ said Fraser Mackersie, fund manager at UK equity specialist Unicorn Asset Management.
‘UK small and mid-caps can be the engine room of the UK economy, companies that don’t just list here but employ here, spend here and create growth here. Keeping capital in the UK and directing UK tax breaks to support UK businesses, the likes of which we own heavily in our portfolios, rather than the economic benefit going overseas is positive. We think there is further to go but a British ISA is a possible step towards addressing that.’
Speaking to Citywire recently, Liontrust manager Anthony Cross suggested that all foreign shares and funds should be banned from ISAs.
During his speech, Hunt also said National Savings & Investment would launch a new British Savings Bond, which would have a guaranteed rate for three years. He did not disclose what that rate would be.
Adding to complexity
Claire Trott, divisional director of retirement and holistic planning at St James’s Place, welcomed the new British ISA allowance. However, she warned that it would come with restrictions that ‘may be a turn off for some’.
‘It also adds to the complexity of something that used to be simple, we now have multiple ISAs with various restrictions, which will probably mean more need for financial advice,’ she said.
Rachael Griffin, tax and financial planning expert at Quilter, also expressed concerns over more confusion for retail investors.
‘The introduction of this new ISA allowance raises significant implementation challenges and serves to further complicate the once-simple ISA brand,’ Griffin said.
‘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.’
UK ISA consultation
Drilling down into the documents released alongside Hunt’s speech, here are some of the key rules associated with the British ISA that will be consulted upon.
- Eligible UK companies ould be defined as as ordinary shares in companies that are incorporated in the UK and are either listed on a UK recognised stock exchange or admitted to trading on a UK recognised stock exchange.
- The government proposes that collective investment vehicles could be included in the UK ISA.
- A previous apporach to personal equity plans (PEPs) could be applied for funds. PEPs allowed investments in authorised unit trusts and / or investment trusts if at least 75% of the value of the investments held by the fund were invested in eligible UK companies.
- The inclusion of UK corporate bonds and gilts within the UK ISA is also being consulted upon.
John Schaffer (City Wire)