British ISA explained - how will it work and what the experts think about it
A new British ISA was announced in the Budget this week, to try and encourage savers to invest in British businesses.
During his speech in the House of Commons, Jeremy Hunt explained the new savings product would give people an extra £5,000 tax-free limit, on top of the existing £20,000 ISA allowance. A consultation will be launched first to run through how it would work.
The Chancellor said: “After a consultation on its implementation, I will introduce a brand new British Isa which will allow an additional £5,000 annual investment for investments in UK equity with all the tax advantages of other ISAs. This will be on top of the existing Isa allowances and ensure that British savers can benefit from the growth of the most promising UK businesses as well as supporting them with the capital to help them expand.”
However, some critics have suggested the Chancellor could have instead just increased the ISA limit across all existing products. The different types of ISAs already available are: cash ISAs, stocks and shares ISAs, innovative finance ISAs, lifetime ISAs and junior ISAs.
You can invest your whole £20,000 tax-free limit in one type of ISA, or split it across different types - however, if you split it, you still can't go over that £20,000 limit. It is also important to remember that the yearly limit for the lifetime ISA is £4,000, while for junior ISAs it is £9,000. The junior ISA limit does not affect your own £20,000 limit, as the money is designed to be invested for your child or grandchild.
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What do the experts think of the British ISA?
Adam Thrower, head of savings at Shawbrook, said the possible introduction of the British ISA could offer a new option for those who are comfortable putting their money towards UK businesses - however, you should keep in mind that your level of return isn't guaranteed. This is because your return will depend on how well the companies are doing.
He added: "It's important to remember that the stock market can be volatile, and this won't be the right choice for everyone. Many savers prioritise security and predictability, and existing options like cash ISAs or fixed-rate bonds will remain very popular."
Alastair Black, head of savings policy at abrdn, added: “The British ISA is an interesting concept, but it remains to be seen how attractive this will be to savers and whether there will be enough consumer demand to warrant the delivery costs in bringing it to market.”
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, added that savers "must be conscious of all the ISA options available to them" and urged people to seek advice if they wish to invest in the stock market. She said: ”The intention of the British ISA is to grow our economy, reward investors and support British business. This new ISA could well incentivise investment in UK-focused assets, but the Government will consult on the details.”
What is the point of an ISA?
An ISA gives you a tax-free allowance, meaning any interest you earn won't be subject to tax. This is important, as rising interest rates mean more people have found themselves hit with tax bills on their savings.
The personal savings allowance for 20% basic rate taxpayers is £1,000, and for higher 40% rate taxpayers, the allowance is £500. Additional 45% rate taxpayers receive no tax break at all on savings. However, it is important to look at all your options, especially if you don't think you're in danger of breaching the personal savings allowance.
The top easy-access cash ISA right now pays 5.11%, versus 5.16% for a regular easy-access savings account. Similarly, the best fixed rate ISA is currently 5.05% - but you can get up to 5.28% for a regular fixed savings account. The British ISA would work differently though, as we've mentioned above, as this would be depending on market performance of the businesses that are invested.
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