Investor Event

UK ISA – Is it a good idea?

Below we summarise the government’s new UK ISA proposal and ask for members’ input. Your views and responses will inform our response to the consultation.

The consultation can be read here (17pages). Key points:

  • The government is looking to introduce the UK ISA. This will involve a new (additional) Individual Savings Account (ISA) allowance of £5,000 per year and will provide a tax-free savings opportunity for individuals to invest in the UK.
  • The ISA is a tax advantaged savings account, where income and gains arising from within the account are not subject to UK income tax or capital gains tax.
  • There are four types of existing adult ISAs: Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA. Individuals can subscribe up to £20,000 across all ISAs for the year 2024/25.

ShareSoc Commentary

The UK Government, via HMRC, provides fiscal incentives for people to invest and save via pensions, and ISAs.

The aggregate amounts invested in the key wrappers are approximately:

Pensions DC (includes SIPPs) – £500bn
Cash ISAs – £313bn
Stocks and Shares ISAs – £374bn
Subtotal £1,187bn

The proportion of these amounts invested in UK Equities is far smaller. We estimate, very roughly, based on reasonable assumptions:

Pensions DC (includes SIPPs) – £60bn
Cash ISAs – £0bn
Stocks and Shares ISAs – £90bn
Subtotal – £150bn

ShareSoc Policy Committee has reviewed the proposal. Whilst we welcome the government’s focus on improving the attractiveness of UK shares, the UK ISA only makes sense as part of a raft of initiatives aimed at increasing the attractiveness of investing in the UK stock market.

In our view, the Government must concurrently address the myriad of critical issues that impact UK stock valuations. The consultation states that the UK ISA will build on the government’s Mansion House and Autumn Statement 2023 measures to reform the pensions market to unlock investment into high growth sectors and improve the competitiveness of the UK as a listing destination. We would also point to FCA reform, FRC reform into ARGA, the erosion of shareholder rights through nominee structures (which are obligatory for ISAs and SIPPs), Investment Trust cost disclosure rules, and pension rules that encourage the holding of bonds over equities, transparency and effectiveness of FCA and FRC enforcement processes. as well as the ones it mentions in the consultation “the UK ISA will also build on the government’s Mansion House and Autumn Statement 2023 measures to reform the pensions market to unlock investment into high growth sectors and improve the competitiveness of the UK as a listing destination”.

Specific considerations around the UK ISA include:

  • Diversification in your investments is a good idea. The Government is conflicted in that it wants people to invest in the UK, but this may not be the best strategy for people to follow.
  • Most UK individual investors already have a home country bias in their portfolios, although this has reduced in recent years. Too much money is invested in cash ISAs, which give poor returns to investors over the long term. Having a cash buffer is important but having too much in cash causes harm.
  • The UK needs a higher rate of savings and investment, in order to create jobs, wealth and prosperity.
  • Should the UK government be giving tax breaks for investing in UK shares or overseas at all?
  • Only a small number (some 800,000) wealthy people are likely to take up the UK ISA. A family consisting of mum, dad and two kids can already invest up to £118k (£58k in ISAs and £60k in pension contributions) each year. Do the wealthy need an extra £5k tax free investment allowance?
  • Traditional stock markets are disappearing globally as a percentage of overall capital investment, with more companies remain private or choose to become private. It is not just a UK London Stock Exchange problem. If nothing is done, they will continue to shrink.
  • A large publicity campaign to support the launch of a UK ISA will require a huge financial education initiative. We strongly support more financial education. Lord Lee has recently written on this subject in this FT articleA year of takeovers can fuel my portfolio noting:
    • The government’s response to low valuations of UK stocks has been somewhat unconvincing — telling pension funds to be more transparent as to where they are invested and introducing a £5,000 additional allowance British Isa. This damp squib has been slated by many commentators, looks administratively complex, will only benefit the really well-off, and unsurprisingly has hardly delivered a flicker of reaction in markets. Indeed, it now seems as if it will not be operational until next year if at all. 
    • What we surely need is real cultural change — greater financial education in schools, a rowing back of financial regulation which in my view excessively protects the consumer, inhibiting, say, television broadcasters from covering the stock market or investment opportunities.”
  • The industry response so far has been somewhat lukewarm e.g. from AJ Bell
  • There is a need to overcome the significant and widespread suspicion and mistrust, here in the UK, of investing in shares. Workplace savings have traditionally been through Defined Benefit Pensions. This has now changed and personal responsibility is required. Many have not grasped this change. Hence, further encouragement through a UK ISA is appropriate to achieve this new way of saving for a retirement goal. 


Boring Money have published this commentary on the UK ISA which readers may also find of interest.  It is written by Melissa Gallagher, Head of Investment Trusts, BlackRock.

We welcome member feedback to the government’s initiative. Please feel free to use the comments section below.

  1. Stephen Burke says:

    It seems unlikely that this will be implemented before a general election so it would only happen at all if Labour support it – have they given any indication? If anything it may be more likely that they would reduce allowances.

    From a personal point of view I’d probably use the extra allowance but it would make no real difference, I’d just move the UK part of my existing portfolio to it.

    It seems unclear whether the purpose is to boost the UK stockmarket itself and companies linked to it, e.g. brokers, or to benefit the UK economy in general. If the latter then boosting investment into BP or Unilever is unlikely to make much difference, and even for UK-oriented companies having a higher share price doesn’t help directly – maybe the opposite if they use share buybacks. To really help it needs to be related to capital raising – maybe something like VCTs but going further up the size scale?

    It’s hardly surprising that people aren’t interested in UK shares when the performance is so poor. People have recently been celebrating the FTSE 100 getting above 8000, but it got to nearly 7000 in 1999. Medium term economic forecasts are pedestrian even in the absence of any shocks. Also in the dotcom boom we did at least have UK companies trying to take advantage, even if a lot of them went bust. This time we seem to have no companies at all in the hot tech areas – a few years ago people were talking up “silicon roundabout” in East London but nothing seems to have come of it, and science parks connected to universities continue to produce relatively few good companies (and the ones that do appear tend to get rapidly taken over by a US company).

    A final point is that the UK market does have some companies which have done well but they tend not to be well-known – perhaps not coincidentally as press and politicians love to knock success. For example I could think of Compass, Halma, Diploma, RELX, Ashtead, …

  2. Chris Hardstaff says:

    I would have thought the Government will introduce it before a General election – all tax saving initiatives can be boasted about, and they show they keep their promises; but until we know the detail these seems little point discussing it.

  3. Sam Morland says:

    Yes, it is a good idea.

    I personally think tax advantages should not be given for savings (in general) – apart from pensions, where the state is encouraging us to provide for old age.

    But I struggle to see why general savings should be taxed-advantaged by the UK taxpayer, unless there is specific benefits to the UK economic goals (eg EIS, forrestry, VCT etc). Why should someone buying shares in Exxon or McDonalds receive a tax break?

    I see the introduction of a British ISA as potentially the start of making all ISAs (new and existing) only eligible if invested in the UK. It is true that investors should have a diversified (geographically) portfolio – but just that part that is outside the UK would not receive a tax break.

  4. Mike Hat says:

    The overpaid leaders of British companies do not deserve any more support from British retail investors. They treat us as irrelevant, they will not engage with us directly but they consider they have have a god given right to consult directly with the poor performing Fund Managers who fail to recognize whose money it is in the pension funds they manage. No here today gone tomorrow MP can be trusted to sure my financial future, I have to take care of that myself. That’s why I shall invest were I what and when I want and with who I want.

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