In March, Jeremy Hunt announced as part of his Spring Budget, that there would be a new British ISA introduced to sit alongside the existing 4 other ISAs available in the UK (cash ISA, Stocks & Shares ISA, Innovative Finance ISA and Lifetime ISA). The unique attribute to this ISA is that it can add an additional £5,000 on top of your £20,000 annual allowance limit, however, this will solely be investing in UK companies.
While there are still many details yet to be concluded as to what the British ISA will look like (the consultation period will run up until 6th June 2024), this type of tax wrapper can help in an individual's goals of wealth creation.
If we assume that by investing in British Companies, the government are implying that within the British ISA you could only invest in UK companies which were listed on the FTSE All Share. This means that once you have maximised your ISA allowance of £20,000, you have a choice, either invest £5,000 into a British ISA and benefit from tax-free growth or invest £5,000 into a global diversified portfolio with growth being potential subject to capital gains.
If we observe the last 5-years for returns, we can see investing in the FTSE All Share would have turned £5,000 into £6,369.31, a return of £1,369.31. Whereas, investing the MSCI World (represented by Fidelity Index World) would have turned £5,000 into £9094.88, a gain of £4,094.88. This would be £3,985.40 after Capital Gains Tax (assuming you’re a basic rate taxpayer).
We’ll have to wait and see what the British ISA will look like after the consultation period. However, it looks like continuing to invest in a globally diversified portfolio will still overcome the tax benefits of a British ISA. As they say, ‘don’t let the tax tail wag the investment dog’.
