Finally... ISA increase... sort of

older_and_no_wiser

Well we are now allowed to contribute an extra £5000 a year into an ISA.... as long as it's into UK funds/companies. I wonder how they'll police that and how investment platforms will market it.

Will it be worth a punt for those who have hit the £20k limit elsewhere? The higher returns of non UK funds (even after tax) will outweigh the tax savings of a UK fund. Who knows if this will remain the case in future though. 

Alistair31

Not happening any time soon if it’s out for consultation until June. 

eskbanker

Yes, the consultation asks the following:

Question 1: Should ordinary shares in UK incorporated companies that are either listed on a UK recognised stock exchange or admitted to trading on UK recognised stock exchange be eligible for the UK ISA?

Question 2: Should collective investment vehicles be eligible for the UK ISA and if so, which vehicles specifically? What should be the minimum requirement for each of the underlying investments and how would each be monitored by ISA managers?

Question 3: Should corporate bonds be eligible for the UK ISA?

Question 4: Should gilts be eligible for the UK ISA?

Question 5: Are there other investments that already qualify for an ISA that should be eligible for the UK ISA? How would they meet the policy objectives?

Question 6: Should the UK ISA allow subscriptions to multiple UK ISAs in the same tax year?

Question 7: Should transfers from any type of ISA to a UK ISA be allowed? Should there be a limit on transfers from other types of ISAs to a UK ISA?

Question 8: Are there any downsides to the government’s proposals on transfers out of a UK ISA?

Question 9: Should the UK ISA have cash holding rules? Which rules should be included in the UK ISA?

Question 10: Are there any other design features that the government should consider at this stage?

Question 11: Are there any other unintended consequences from this approach?

Question 12: Would you be interested in offering a UK ISA based on the design set out in chapter 2 and 3?

Question 13: How long would it take for you to launch a UK ISA product and when would you start building it following this announcement?

Question 14: What would the cost implications be and what operational changes would you need to undertake?

Question 15 What, if any, issues do you foresee from a compliance perspective for the UK ISA? Please provide details. 

https://assets.publishing.service.gov.uk/media/65e734d62f2b3bd5107cd8c5/UK_ISA_Consultation.pdf

Alexland

Although many people seem to be calling it the Great British ISA 'GBISA' it was nice to see the Treasury document calling it the UK ISA as a nod to including those in Northern Ireland. They don't seem to have done the same on the new British Savings Bonds which don't seem particularly different to a normal NS&I bond offer.

I'll wait until they have a fleshed out the UK ISA proposal but yes it should only be of interest to those that have over £20k per tax year to invest. I suspect that very few providers will be interested in implementing it (possibly making it even smaller than the S&S LISA market) which might make transfers etc tricky and (again similar to LISAs) these small accounts incur additional platform fees when those who are already using their full ISA allowance are likely to have accumulated enough to already benefit from fixed or capped fee platforms on their main S&S ISA.

I can't imagine many (or perhaps any) of the most competitive platforms being interested in implementing the UK ISA. Maybe a few friendly societies might launch it as an unattractive high fee / low return product maybe marketing to patriotic people who haven't even used much or any of the £20k allowance.

It will be interesting to see if they offer ISA transfer-out options are after using the UK ISA allowance for example would they allow a transfer into the main S&S ISA of previous years UK ISA contributions etc. My guess is no transfers-out to other ISA types will be allowed.

I was sad for first time buyers to see the LISA property price limit wasn't increased for inflation and no new concession for those who have been saving in LISAs and found their target property now breached the limit allowing them to only pay a 20% penalty if withdrawn by a conveyancer as part of an otherwise qualifying property purchase. Sorting this problem would have cost them very little and would have been a better use of their time than this UK ISA idea.

Rather than develop a UK ISA it would likely have been more beneficial to the UK economy to increase VCT tax relief to 35% and cap ongoing management fees at 1.25%. That would be an easy route to getting high earners to invest much more in UK business growth.

Swipe

Can't see this being finalised before the next election.

eskbanker

Swipe said:

Can't see this being finalised before the next election.

I'd suggest that questions 13 and 14 would imply that HMT is well aware that this is a non-trivial implementation, and they'll be keen to have some sort of industry support at launch, in terms of product availability, etc, so wouldn't expect it to happen until 6 April 2025 at the very earliest....

older_and_no_wiser

I think there would be a lot of people who would invest in this rather than a regular ISA if it was marketed well. Obviously nobody on this forum and those who are knowledgeable investors. However, a large percentage of the population aren't too clued up and the lure of a UK investment would be tempting. Maybe for the same reasons that Vanguard LifeStrategy funds are popular because they have UK bias.

barnstar2077

As long as they don't phase out normal ISAs!

Swipe

older_and_no_wiser said:

I think there would be a lot of people who would invest in this rather than a regular ISA if it was marketed well. Obviously nobody on this forum and those who are knowledgeable investors. However, a large percentage of the population aren't too clued up and the lure of a UK investment would be tempting. Maybe for the same reasons that Vanguard LifeStrategy funds are popular because they have UK bias.

I disagree, apart from moving my inherited Lloyds shares into it, it doesn't really interest me unless I can add funds to it rather than company shares.

Audaxer

older_and_no_wiser said:

Obviously nobody on this forum and those who are knowledgeable investors. 

I think some knowledgeable investors, on this forum or elsewhere, who have used up their existing ISA allowances, could possibly use the other £5k allowance pa that a UK ISA would give them, to effectively move some of their UK funds/ITs into the UK ISA. They could do that by selling a UK fund(s) in their existing ISA and rebuying it in the new UK ISA. This would give them a further £5k available within their existing S&S ISA to increase investments in global funds/ITs. So I think they could balance it so they still have the same overall weightings of UK and global funds in their portfolio that they had originally.

Alexland

older_and_no_wiser said:

I think there would be a lot of people who would invest in this rather than a regular ISA if it was marketed well. Obviously nobody on this forum and those who are knowledgeable investors. However, a large percentage of the population aren't too clued up and the lure of a UK investment would be tempting. Maybe for the same reasons that Vanguard LifeStrategy funds are popular because they have UK bias.

Most people I know seem to have a gloomy outlook for the UK as a result of globalisation (regardless of the pros and cons of Brexit) so the chance to invest in a more limited version of a S&S ISA has no appeal other than the extra £5k allowance. Even if they did want to only invest in the UK (however that ends up getting defined) they would have a wider choice of UK funds in a regular S&S ISA than being limited to 'qualifying funds' via a UK ISA.
I doubt VLS funds are popular because of their UK bias probably just general good Vanguard marketing with many investors probably not even aware of the UK bias. If the VLS funds didn't have a UK bias they would probably sell even better as the performance record would have been more impressive.