In a bid to increase investment into the UK, the arrival of a new British ISA and British Savings Bonds was announced in the 2024 Spring Budget. In addition to this, new legislation will be introduced around the required disclosure of what pension funds are invested in UK equities.
So, what do these changes mean and how could they impact your financial planning?
The British ISA
The UK ISA aims to invest either exclusively or predominantly in UK shares or other UK-oriented investments. A consultation period has been launched to canvass views on how this type of ISA might be constructed, with the possibility that this also includes corporate bonds and gilts. The UK ISA would also have an additional subscription limit of £5,000 as well as the £20,000 ISA allowance we have today.
The consultation is due to report in June 2024. The purpose of this is to establish in conjunction with the financial services industry how, once the idea has been formalised, the British ISA might be implemented. The project is only at the draft stage, and will need to reach answers to some practical considerations, such as:
- How are ‘UK shares’ defined?
- Will this be companies listed on the London Stock Exchange only?
- Will gilts and corporate bonds be included?
- How will multinational businesses that list in London but have only a weak connection to the UK be treated?
- Will any non-UK asset be excluded? If so, how will this be enforced?
- What happens to a British ISA if it contains a UK company that later decides to move to another country?
The ISA annual subscription limit for 2024/25 will continue at £20,000. Alongside this, there is still a limit for junior ISAs (JISAs) and child trust funds (CTFs) that still stands at £9,000.
However, there are some more technical updates to ISAs that will take effect from 6 April 2024, these include:
- An increase in the minimum opening age for cash ISAs to 18.
- Restrictions on subscriptions to more than one ISA of the same type within the tax year (except for Lifetime ISAs) will cease.
- The lifting of the ban on partial transfers of current year ISA subscriptions between ISA managers.
The disclosure of pensions with UK equities
In order to visualise what investments from pension funds are being put into the UK, the Chancellor Jeremy Hunt advised in the Spring Budget that both defined contribution and local government pensions will be required to bring to light where their funds are invested – the split of domestic and international investments. Further action would be taken, implied Hunt, if not a great enough proportion of funds are invested in the UK.If the government wishes to encourage more UK share take-up, the carrot is likely to be much more effective than the stick.
Whilst it is theoretically possible to force defined benefit pension funds to invest a greater proportion of their assets in the UK, it is hard to see how this would work with defined contribution schemes. This would be equivalent to passing a law compelling people where to invest their own money, which would likely be very unpopular as well as difficult to enforce.
The wish to drive further investment into UK equities is a laudable one, but it is not at all clear how this can be done via compulsion rather than by free choice. Put another way, if the government wishes to encourage more UK share take-up, the carrot is likely to be much more effective than the stick.
British Savings Bonds
In addition to the above measures, in early April 2024 National Savings & Investments (NS&I) will launch the British Savings Bond. This will offer consumers a guaranteed interest rate that will be fixed for three years.
The bonds are available to those who invest between £500 and £1m, and will include Guaranteed Growth and Guaranteed Income Bonds.
What does this mean for you?
It is certainly interesting to see some innovation being offered by these new government schemes, and particularly where this will benefit domestic UK companies. At the same time, it is no secret that UK equities have lagged behind their US counterparts somewhat over the last decade, and incentivising investment into UK stocks will only be worthwhile if the long-term returns are there. In other words, whilst it is nice to save some tax, the underlying investment has to be sufficiently attractive as well.It is also important to bear in mind that with a UK General Election just around the corner, any of these proposals are subject to review under a new parliament.
For most investors, the devil will be in the detail. The various consultations need to be completed and to report back, and the providers of these new proposed investments need to publish concrete details of how they will work. It is also important to bear in mind that with a UK General Election just around the corner, any of these proposals are subject to review under a new parliament. This might mean that some of the proposals will be changed, perhaps to a large extent.
As ever, this is something that we will keep under review and continue to factor new developments into our advice as they arise. If you would like to speak to a professional financial planner about your investments, pensions, or retirement planning goals, please do not hesitate to contact us.
Important Note
The information contained within this document is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
This article is distributed for educational purposes only and should not be considered financial advice.
If you are unsure about the suitability or otherwise of any product or service, we recommend that you seek professional advice.
The opinions stated in this document are those of the author and do not necessarily represent the view of Progeny and should not be relied upon to make a financial decision.
Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
If you are unsure about the suitability or otherwise of any product or service, we recommend that you seek professional advice.
Past performance is no guarantee of future performance.
The value of an investment and the income from it can fall as well as rise and investors may get back less than they invested. Your capital is therefore always at risk. It should be noted that stock market investing is intended for the longer term.
Tax treatment depends upon individual circumstances and is based on current UK tax legislation, that is subject to change at any time.
