Reports that the government will drop plans to create a new UK ISA have been broadly welcomed.
The news follows concerns that a new ISA would further complicate an already complex investment market for savers.
Plans to create a British ISA were announced in the Spring Budget 2024 by former chancellor Jeremy Hunt.
Under the plans, the ISA would have its own annual allowance of £5,000 in addition to the existing ISA allowance of £20,000. The aim was to provide a new tax-free savings opportunity that would support a culture of investment in the UK.
‘Great in theory‘
Steve Watson, director of policy and research at NatWest Cushon, said: “People are put off thinking about and managing their long-term savings by the complexity of the system; they’re worried about getting something wrong because they might not be confident in what they’re doing.
“The government’s early commitment to a review of pensions was a good start, so it is great to now see them following up with this decision to scrap the British ISA. It was one of those ideas which looked great in theory but would have just made life more complicated for ordinary savers.”
‘Muddy the water’
Shaun Moore, tax and financial planning expert at Quilter, said: “Labour’s reported scrapping of plans to create a British ISA is a sensible move. The ISA is a simple idea, a tax efficient place to grow your wealth, however, with various additions over the years it has now become a confusing area of personal finance. If the British ISA did see the light of day, it would have further muddied the water.
“The British ISA was rife with issues and the proposals ran the risk of consumer confusion or poor outcomes. For example, limiting the ability to transfer out of a British ISA to a different ISA may not be fully understood at the time of opening. Furthermore, the investment universe of a British ISA would be naturally limited.
“The reality is, the UK has a cash savings problem and too much money is sat in low yielding cash ISAs, doing very little to help them or the economy. Finding ways to get that money invested for the long-term would be far more beneficial to the UK as a whole without the need for the creation of an extra allowance. The more people we get investing, both in the UK and more generally, the more the economy will naturally come to benefit.”
‘Simplicity is key’
Dan Olley, chief executive officer at Hargreaves Lansdown, commented: “We’re pleased that the government will not be pursuing this because simplicity is key when it comes to getting people to start investing. That’s why the ISA allowance is so essential, it helps people start investing without any of the complexity around tax. The UK ISA would have added complexity with little real benefit for many.”
He continued: “The key to investing is to start early to benefit from the power of compounding over time, but many people lack confidence or time to do so. This is a challenge to be addressed.”
The current government has not made a formal announcement yet.
