Spring Budget 2024: Chancellor confirms ‘British ISA’ launch

Jason Hollands, Managing Director of Bestinvest, the online investment service owned by wealth manager Evelyn Partners, comments:

“Chancellor Hunt’s Spring Budget today has reminded me of the children’s song ‘the Grand Old Duke of York’ whose lyrics talk about 10,000 men being marched to the top of a hill, only to be marched down again. As the rhyme goes ‘and when they were only half-way up, they were neither up nor down’.  It feels a little like that for taxpayers.

“After months of speculation and the kite flying of potential policies - including a radical overhaul of inheritance tax, cuts to income tax and a reshaping of stamp duty - the measures in this Budget have been far more modest in scope. A widely trailed 2p reduction in the Class 1 rate of National Insurance Contributions for employees is the main headline grabber, but elsewhere there were targeted taxes rises.

“While the NI cut is welcome, the UK tax burden remains onerously high, with a vast number of people being increasingly drawn into the higher rates of income tax as a result of frozen thresholds. With no backtracking on plans to keep these frozen until April 2028, this is just a short respite in a rising tax burden that for many will continue to build.

The new ‘British ISA’

Hollands says the big news, for private savers and investors is the confirmation that a new ‘British ISA’ restricted solely to UK equities will be launched, with an annual allowance of £5,000:

“Anything that increases the amount people can invest tax efficiently, should be broadly welcomed in these taxing times, but an increase in the core ISA allowance, which has been frozen at £20,000 since 2017/18, would have been far more preferable than yet another type of ISA with a restricted range of investments.

“The ‘British ISA’ is undoubtedly a victory for the City stockbrokers and bankers who have lobbied hard for it amid a drought in IPO and deal fees and a worrying sapping of companies listed in London to New York. However, I am doubtful it will drive anything like the increased flows into UK equities being talked about. Proponents claim it might drive £200 billion extra cash into UK equities over five years, but it is hard to reconcile such a figure with the fact that the existing, larger ISA £20k allowance attracted a lesser amount into Stocks & Shares over the last five years according to data disclosed by HMRC. A relatively modest number of people fully utilise their existing £20k allowance and a logical step for those who will be in a position to do so and also make use of the ‘British ISA’ will be to commit less to UK equities in their main allowance to compensate.”

Taxes on investments are rising

Hollands adds: “It should also be pointed out that while the Government has taken some positive steps in respect of pensions in recent years, with the scrapping of the Lifetime Allowance and increase in the annual allowance, the direction of travel for the tax treatment of investors elsewhere has been one that has seen a tightening of the noose.

“Having drastically cut the annual capital gains exemption from £12,300 to £6,000 in the current tax year and the amount of dividend income that can received tax free from £2,000 to £1,000, it should not be forgotten that both allowances are set to be halved again on 6 April, respectively to £3,000 and a paltry £500 for dividends.

“An extra £5k ‘British ISA’ – while helpful – needs to be set against the erosion of key allowances for investors, especially when inflation is factored in. The decimation of capital gains and dividend allowances does however underly the importance of making as much use of tax-free ISA allowances as possible, something to bear in mind with just a few weeks left before the end of the tax year.”