Hopes new ‘British ISA’ will boost economic activity

The Spring Budget delivered a new opportunity for tax-efficient investing. One aimed directly at investors helping potentially stoke the fires of the British economy, the “British ISA”.

There have been several ISAs made available to investors over the years. Some popular, some less so. This is partly perhaps due to challenges surrounding affordability in maximising the use of the allowance and, in some instances, flexibility in how they can be used.

The British ISA is a new £5,000 allowance in addition to the existing ISA allowances but for investment exclusively in UK stocks.

While the increased opportunity for tax-efficient savings could help with making financial provisions, it may also pose problems.

For an investor to maximise on the British ISA, they could allocate the UK equity content of their subscription into that allowance (albeit a singular asset class and a singular geographical location allowance), with the residual investment spread of their ISA subscription into their main ISA allowance. The one concern is this may still lead to a change in the investor’s agreed risk profile just to make full use of the new British ISA allowance. Thus, allowing the tax tail to wag the investment dog!

This risk could be potentially mitigated if an investor with significant existing wealth was able to harmonise their risk profile over the entirety of their portfolio, or that of the household. Although as a financial planner, this methodology of investing may not be always suited in meeting your personal circumstances or financial objectives.

The additional administrative issues that may not be as easily automated by investment platforms could limit this approach.

As the old adage goes… the devil is in the detail, and as always, we will have to wait and see what comes to pass.