Spring Budget 2024: Extend your ISA to back British enterprises

In the Spring Budget, the launch of a new ISA allowance was announced to boost investment in homegrown firms.

Individual Savings Accounts (ISAs) currently allow individuals to invest up to £20,000 a year without paying tax on interest or returns.

The tax position of ISAs contrasts with the position under ‘unwrapped’ investments such as General Investment Accounts (GIAs) or deposit accounts. Under GIAs, the dividend yield is potentially subject to Income Tax and, in addition, Capital Gains Tax could be payable when investments are sold. The interest from deposit accounts is potentially subject to Income Tax. For this reason, we encourage investors to utilise their annual ISA allowance.

The Great British ISA will see investors benefit from an extra £5,000 allowance for UK-listed equities.

At this stage, it is unclear whether the new ISA will just be for investing in UK shares, or if UK-focused funds and investment trusts will also be included. It is also unclear whether UK gilts or UK corporate bonds will also be eligible. Therefore, individuals should be aware that any additional monies invested might not be diversified from an asset class point of view in addition to the fact that there is no geographical diversity. They will need to be comfortable with these potential risks. If this is the case, there are tax savings to be made from the ability to invest an additional £5,000 into ISAs each year.

We could consider the example of an individual who is a higher rate taxpayer and already uses their dividend and Capital Gains Tax allowances elsewhere.

• If they invest the current maximum £20,000 into an ISA each year and it grows by 5% per annum after charges, they are projected to have an ISA fund of £251,588 after 10 years. If this £20,000 per annum was to be invested in a GIA, they would still have a fund worth £251,588 after 10 years. However, the Income Tax they will have paid on the investment dividends over the years plus the Capital Gains Tax on final encashment is projected to total £10,961.
• If they invest the new maximum £25,000 into an ISA each year, on the same basis after ten years they are projected to have an ISA fund of £314,447. If this £25,000 per annum was to be invested in a GIA, again they would have the same level of funds after 10 years. However, the Income Tax they will have paid on the dividends over the years plus the final Capital Gains Tax liability is projected to total £23,701.

Therefore, the ability to divert an additional £5,000 from other investments into ISAs each year is projected to reduce the overall tax liability over ten years by £13,010.

There is no suggestion of a date when the new ISA will be made available, but it is unlikely to be imminent as the consultation period for the UK ISA runs until 6 June 2024.

One change announced in the Autumn Statement that is coming into force from 6 April 2024, is that investors will be able to make multiple subscriptions to ISAs of the same type in the same tax year. Under the current rules, you can only open one type of ISA each tax year: cash, stocks and shares, or innovative finance.

Contact Us

If you would like to discuss how these changes will affect your current savings in further detail, please don’t hesitate to contact our Financial Planning team who will be able to give you support and advice with regards to your own personal circumstances.