British ISA: the ISA that ended before it even began| Saga

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In March 2024, Chancellor Jeremy Hunt confirmed plans to launch a new British ISA to encourage investment in UK businesses. Officially referred to as the ‘UK ISA’, the new tax-free savings account was expected to join a raft of similar products, including cash, stocks and shares, junior, lifetime and innovative finance ISAs.

Announcing his proposals in the Spring Budget, Hunt said: “Following calls from over 200 representatives of the City and our high-growth sectors, I will reform the ISA system to encourage more people to invest in UK assets.”

The ISA, which was always subject to a process of consultation, was designed to allow investment of an additional £5,000 annually in ‘UK equity’ with the same tax advantages as other ISAs.

Why was the British ISA proposed?

The British ISA was designed to encourage more investment into the UK stock market. Some commentators believe that UK equities are undervalued, compared to both their historical equivalents and to their US counterparts.

Jason Hollands, Managing Director of investment and financial coaching company Best Invest, said at the time: “The UK market has seen significant outflows from investors in recent years, companies are trading at very low valuations given their profitability and as a result there are concerns about a spiral of negativity.”

He added: “Cheap UK companies also risk getting snapped up by foreign buyers and private equity. Over the last five years, the number of companies in the FTSE All Shares has declined by 20% - it’s worrying.”

These issues are often blamed on a lack of investment, so the British ISA was intended to take a step towards addressing that.

Will the British ISA be missed?

“The biggest advantage of the British ISA was the ability it would have given to save extra tax-free each year, especially as the annual ISA allowance has been held at £20,000 until 2030.

“The increase in tax-free allowance would have been particularly appealing to some over-50s, who are the most likely to be investors, with many using an ISA as an alternative vehicle for retirement savings. If the British ISA had encouraged some to put away additional monies for their retirement, that would have been a good thing.

“However, it's understandable that the British ISA has been scrapped. It's been estimated that just 15% of the adult population hold a stocks and shares ISA at all, and only a small portion of those have maximised their allowance (according to the latest figures), so the added savings benefit from the British ISA was unlikely to be of relevance to most, especially as the cost-of-living crisis has reduced the ability of many to save.

“There were also concerns about the complexity of the British ISA. With that in mind, and the fact that most investors are not maximising their existing tax-allowances, it seems unlikely that it will be much missed.

“For those looking to invest and striving to receive returns above the rate of inflation, maximising their existing ISA allowance through the existing stocks and shares ISA with a more diversified, global investment approach, rather than focusing just on UK equities, is anyway a better approach.”

Alex Edmans, Product Director, Saga Money

Why has the British ISA been scrapped?

The launch of the British ISA was never completely confirmed, and there was no start date. The government held a consultation for financial services firms between March and June 2024, covering both how the product would work and the range of investments that would be permitted.

The British ISA was not mentioned in either the Conservative or the Labour election manifestos, so there's a chance it would have been scrapped regardless of who won the election.

The proposals were met with a mixed response when they were first announced. There were question marks over both the number of people that would benefit and the difference it would make to the UK economy. The British ISA would only really have been of interest to those with more than £20,000 a year to invest, and who were comfortable investing in stocks and shares rather than a cash ISA.

Hollands said at the time: “The reason I think the UK ISA might not have the impact its proponents claim is, firstly, the number of people who have more than £20,000 to invest each year is naturally limited.

“Secondly, even those who do have the additional funds to invest in a UK ISA, on top of their £20,000 ISA, may just decide to compensate for the extra allowance by investing less in UK equities in their main ISA. People are not stupid.”

There were also concerns that adding even more types of ISAs into the mix would add complexity and could put people off investing. Deciding exactly which equities qualified as “UK” equities would not have been a simple task.

Wthout the British ISA, what are the options for savers?

The ISA allowance remains at £20,000 a year, whether you choose to invest in stocks and shares, a cash ISA, an innovative finance ISA, a lifetime ISA, or a mixture of these.

All ISAs are a tax-efficient way of saving, because you don't pay cash on the income or interest. Stocks and shares ISAs can go down in value as well as up. With cash ISAs, there's no investment risk. Innovative finance ISAs are designed for people who want to invest in peer-to-peer lending.

Another tax-efficient option is to pay into a pension and get tax relief on your contributions. There are specific rules governing this, but in broad terms, you can pay into a pension even if you're already retired, as long as you're under 75.