The UK ISA slides into view

One of the many well-trailed announcements in the Spring Budget was the launch of a UK ISA. However, both its arrival and interest may be uncertain.

Alongside the Budget, the Treasury published a consultation paper on a possible fifth ISA variant, the UK ISA. To quote the paper, the rationale behind the UK ISA is “to give people the opportunity to invest and benefit from the UK’s vibrant capital markets and high-growth companies”.

What the new ISA will look like is unclear at present:

  • The maximum contribution is set at £5,000 per tax year, in addition to the current £20,000 general ISA limit. By an odd coincidence, that general limit would now be a little over £25,000 had it been index-linked since its last increase in April 2017.
  • Investments could include shares in UK registered and UK listed companies, corporate bonds issued by those companies, and UK Government bonds and collective funds (e.g. unit trusts). Similar to the Personal Equity Plans (PEPs) launched in 1988, the Government may require at least 75% of collective fund holdings to be in UK companies.
  • Holdings of cash would be restricted, with possible disincentives such as tax levied on any interest received – again similarly to PEPs.
  • To maintain the UK focus of the new plan, transfers out would be limited to other UK ISAs. The Government is undecided on transfers in and is seeking views: they could be banned or unrestricted.

The latest HMRC data shows that just over 800,000 investors subscribed the maximum to a stocks and shares ISA in 2021/22. Investment Association data, which is less comprehensive, shows that in 2022/23 there was a net outflow from ISAs of £2,339 million, a trend that has grown since, with only April 2023 seeing a net inflow.

These figures suggest limited potential interest in the UK ISA, if and when it launches. Meanwhile, the existing ISA looks like a superior offering as the new tax year gets underway: better tax benefits (no tax on cash interest), much greater investment flexibility and a £20,000 investment limit. ν

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