How could the proposed UK ISA benefit businesses and investors?

Since the government first introduced ISAs in April 1999, several different types have been developed.

As well as a Cash ISA and Stocks & Shares ISA, you can save for children and grandchildren using a Junior ISA or put savings aside for your first home or retirement using a Lifetime ISA.

Now, a new ISA has been proposed by the government: the UK ISA. The government is yet to announce the details, but it could be available for investors to use as early as April 2025.

So, what could the UK ISA mean for you, as an investor, and more widely, for the UK stock market? Read on to learn more about what we know so far and how it could affect you.

The UK ISA has been proposed to encourage more investment in British companies

Chancellor Jeremy Hunt first announced that the government is developing a new UK ISA in his 2024 Spring Budget.

The government hopes that the scheme will boost investment in UK stocks, helping to increase the capital that is available for businesses, enabling them to grow more quickly. Morningstar reports that UK equities have become less popular in recent years, and many companies are choosing to list on stock markets in other countries instead.

Only a few details have been announced so far, as the government only recently concluded its consultation on the matter.

The chancellor has announced that investors will be granted an additional £5,000 ISA allowance, provided it is invested in UK-listed companies.

Though the details of exactly what you will be able to invest in using the ISA have not yet been confirmed, AJ Bell shares that it might mean investing in “eligible companies”, such as those listed on the London Stock Exchange (Main Market and Alternative Investment Market), Aquis Stock Exchange, or the Cboe Europe exchange.

Funds and investment trusts are likely to qualify, but there may be some restrictions to these. The government has also suggested allowing some corporate bonds in the UK ISA, which enables investors to lend money to a company directly.

In addition, gilts, which allow investment in public services, may be included as another way for investors to support the economy.

The UK ISA may provide a tailwind for UK equities

The UK ISA is designed to boost investment in UK equities, but how might this affect the companies listed on the London Stock Exchange?

The Morningstar report shares that the announcement of the ISA has received mixed reactions from industry experts.

Some felt that the ISA could provide a “tailwind for UK equities”, potentially increasing prices if enough investors take up the opportunity. Others have called the move a positive step but one that requires further action to simplify the process of investing in home-grown companies.

The report points out that, currently, only 15% of investors use the entirety of their ISA allowance each year. So, the qualification rules would need to be carefully crafted to ensure investment increases rather than existing investments being restructured to take advantage of the additional allowance.

The UK ISA may present an opportunity for investors, but it’s sensible to consult your planner first

If you have used your existing £20,000 ISA allowance, investing a further £5,000 using the UK ISA could be a helpful and tax-efficient way to continue to grow your wealth. There are some important considerations to be aware of though.

Fidelity points out that the UK ISA could increase the risk of home bias for investors. Home bias is a type of cognitive bias in which an investor is more drawn to familiar investments, such as those listed in their home country, leading to a less diversified portfolio. If you’re investing using the UK ISA, you may wish to check that you aren’t overexposing your investments to one particular market or sector.

Your planner can help you to balance your investments appropriately, so that they offer you the greatest opportunity to achieve your long-term goals. They can also help you to identify the most suitable wrappers for your savings and investments, to help you maximise tax efficiency.

Get in touch

The UK ISA may provide some interesting opportunities for investors, but, if a new government is elected later in the year, there’s no guarantee it will go ahead.

If you’d like to learn more about how you can save and invest to grow your wealth and achieve your long-term goals, please reach out to our friendly team of advisers here in Towcester. We keep on top of the important financial news to ensure you can make the most of the opportunities available to you.

Email theteam@fortitudefp.co.uk or call us on 01327 354321.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.