Government consults on British ISA allowing extra £5,000 UK equity investment

The government is consulting on a new British ISA, announced in the Budget, that would allow an additional £5,000 of annual investment in UK equity with the same tax advantages as other ISAs¹. The consultation, published as the "UK ISA" consultation, sets out that the new allowance would sit on top of existing ISA allowances¹.

The Lang Cat, an independent consultancy, noted that the consultation asks how the policy should be implemented rather than whether it should proceed¹. It quoted the government's wording:

The Resolution Foundation said the extra allowance would only benefit people with more than £20,000 a year to save². It cited HMRC data showing that in 2020-21 only 7 per cent of ISA holders, about 1.6 million people, used their full £20,000 allowance². The Lang Cat cited Financial Times figures putting the number who maxed out their allowance in 2020/21 at about 1.6 million¹.

The Resolution Foundation also set out how ISA holding varies by income. In 2018-20, 54 per cent of working-age families in the top 10 per cent of the income distribution had an ISA, against 18 per cent in the bottom 10 per cent². It said 48 per cent of ISA holders with incomes over £150,000 had ISA savings above £50,000, while 65 per cent of those with incomes under £10,000 had less than £5,000 saved². The richest tenth of working-age families owned 29 per cent of all ISA savings².

On the cost to the Treasury, the Resolution Foundation said ISA tax relief is expected to cost £6.7 billion in 2023-24, up from £4.9 billion in 2022-23². It said £67 billion was deposited into 12 million adult ISAs in 2021-22, and that there were over 22 million ISA holders in 2020-21, around 42 per cent of UK adults².

The Lang Cat raised the question of what counts as UK equity, noting that many companies listed in London are not British companies¹. It also noted there are already four main types of ISA: cash, stocks and shares, innovative finance ISAs and Lifetime ISAs¹.

Which? reported that the British ISA is unlikely to launch during the 2024-25 tax year, so it will not affect how people use their ISA in that year³. Separately, from April 2024 savers can open and pay into more than one ISA of the same type in a tax year, within the same £20,000 allowance³.

Why it matters for households

The proposed £5,000 would be an extra allowance, not a replacement, so anyone using it would need to have already used, or be able to use, the existing £20,000¹. Because the additional allowance applies only to UK equity, the range of investments available within it would be narrower than in a standard stocks and shares ISA¹.

The practical reach is limited by how few people use the full allowance. On the latest data cited, 1.6 million people maxed out their ISA in 2020-21, and only around 1 per cent of families with an ISA had average monthly savings sufficient to exceed the £20,000 annual allowance². The Resolution Foundation said the new allowance is unlikely to shift aggregate household saving².

For households already using ISAs, the separate April 2024 rule change means more than one ISA of the same type can be opened and paid into in a year, and part of a portfolio can be transferred to another provider while some stays put³. The £20,000 total is unchanged³.

What happens next

The consultation on the UK ISA is open, and the government's stated intention is to introduce the allowance¹. Which? reported that the British ISA is unlikely to launch during the 2024-25 tax year³. No start date has been reported.