British ISAs – The story so far!

If you were to see a newspaper headline combining Nigella Lawson and Pep Guardiola, you would be intrigued to know exactly what the culinary expert and the treble-winning football manager had been up to!

However, in 1986, the only Lawson on people’s lips was Nigella’s father, Nigel Lawson, who was the Chancellor of the Exchequer, and the PEP in question was his new initiative, personal equity plans, to attract investment in British companies. (1)

Fast forward 38 years, and in an eerily similar vein, the Chancellor, Jeremy Hunt, announced plans to launch a new ISA (Individual Savings Account) designed to encourage investment in UK companies, but what exactly does it entail?

Before rushing out to invest as the new tax year starts, it’s important to note that the consultation period lasts until 6 June 2024, and the details are somewhat vague. Below, we have looked at some of the key points from the consultation document and what they might mean.

How much can I invest?

The new allowance will be £5,000, in addition to the current allowance, so you would have £25,000 available to invest in an ISA product in each tax year.

Where can I invest?

The Chancellor outlined the main objective is to ‘support a culture of investment in the UK’, but what could this look like?

When Personal Equity Plans (PEPs) were introduced in 1986, any investments had to be held in eligible UK companies to qualify for the tax benefits. For simplicity, the government may define these as ordinary shares in companies incorporated in the UK and or trading on a UK-recognised stock exchange.

This would enable investment in a range of companies from the FTSE 100 to AIM, but with 80% of revenues generated by FTSE 100 companies coming from outside the UK, how would this contribute to the growth of the UK economy? (2)

Outside of holding direct shares, if you invested in a collective such as one of the Equilibrium funds, it may be similar to how PEPs were originally set up, where 75% of the fund must be held in eligible UK companies. However, whether collective investment and other potential holdings such as corporate bonds and gilts will be eligible is a key part of the consultation. (3)

Can I transfer in and out of UK ISAs?

The question of transferring funds in and out of UK ISAs is again a crucial element of the consultation, not only determining if it is permitted but also how it could be tracked. The focus may be on how much can be transferred in, be it all of a client’s existing ISAs, or just limited to the £5,000 allowance. Additionally, when transferring out, it’s important to consider if it would be possible to move to another ISA and if there would be a holding period to qualify for the tax benefits.

Other considerations of the consultation are whether you will be able to subscribe to multiple UK ISAs in the same tax year and whether rules regarding cash holdings should be included. (3)

Timescales

There has been no indication of a timeline post the end of the consultation regarding when UK ISAs may be available. This will largely be determined by ISA providers such as Nucleus, who may offer the product, and if so, how quickly they can implement the necessary IT and reporting requirements.

There will also be the ongoing task of monitoring the qualifying investment rules to ensure they continue to meet the established criteria. (3)

Undoubtedly, ISAs and their predecessors of PEPs have proved incredibly popular, with over £742 billion worth of our savings and investments in ISAs, and the additional tax benefits should be viewed as positive.

However, whether Jeremy Hunt manages to create a recipe for success like Nigella, with an astute tactical plan akin to Pep, rest assured Equilibrium will be closely monitoring developments with interest.

If you have any further questions, please don’t hesitate to contact us or book a free, no-obligation chat with one of our experts here.

This blog is intended as an informative piece and should not be construed as advice.

Sources

(1) www.investopedia.com

(2) www.ig.com

(3) UK ISA: Consultation