Jeremy Hunt announces new Budget British ISA – what you need to know

This British ISA will apply to those who max out the £20,000 tax-free allowance

The introduction of a new BritishISA has been announced to encourage investment in UK companies and boost the City, but how does it work?

The ISA will give people an additional £5,000 tax-free allowance to invest in UK assets, on top of the existing £20,000 limit.

Chancellor Jeremy Hunt confirmed the plan as part of his spring Budget statement on Wednesday afternoon.

“This will be on top of the existing ISA allowances and ensure that British savers can benefit from the growth of the most promising UK businesses as well as supporting them with the capital to help them expand,” Mr Hunt said.

Mr Hunt said he had received calls from more than 200 City representatives to reform the ISA system and encourage more people to invest in UK assets.

It forms part of plans to revive the UK’s stock market, which has faced an exodus of listed companies moving to international peers and a dearth of new companies choosing to float in London.

The British ISA will apply to people who max out their £20,000 tax-free allowance on an ISA, a savings vehicle that offers people tax-free interest payments.

Kevin Brown, saving specialist at Scottish Friendly, said it was “encouraging” to see the ISA allowance extended “in the form of an extra £5,000 tax-free to invest exclusively into the UK.”

“Saving and investing is increasingly important for people that are trying to martial their stretched resources through the current economic turbulence,” he said.

Dan Moczulski, UK managing director for trading platform eToro, said: “Anything that encourages British investment and helps revitalise the UK equity markets is a good thing, especially in the current economic slowdown.”

But he warned against a framework that “forces people to invest in the UK at the cost of potentially lower returns” and a less diverse portfolio of assets.

Other investment experts suggested that the British ISA could risk investors putting too great a concentration on one market, rather than spreading their investments into different areas.

Meanwhile, Brian Byrnes, the head of personal finance at money app Moneybox, pointed out that most everyday investors will not benefit from the additional allowance.

“While the British ISA may stand to benefit British businesses in time, and we welcome any reform intended to encourage investing, it is unlikely the British ISA will deliver real benefit to the vast majority of retail investors,” he said.

“The fact is that with a very small minority of investors currently able to max out the current £20,000 tax-free limit, the additional £5,000 allowance will likely solely benefit a small group of wealthier investors who are able to take advantage of it.”

The Government said it will consult on the details of the new ISA.

Michael Summersgill, chief executive of AJ Bell, agreed that a “tiny minority” of people max out the £20,000 tax-free limit each year, meaning any additional investment generated from the additional allowance will be minimal.

He also argued that the plans add an “unwelcome complexity” to investing, adding: “People will now have another option to evaluate when deciding which ISA type is right for them.”