Jeremy Hunt has confirmed that the government will create a tax-free British Isa as part of efforts to encourage more investment in UK companies and offset anxiety over foundering interest in London’s stock market.
The chancellor’s heavily trailed scheme to create a British Isa – or individual savings account – could allow consumers to plough up to £5,000 into UK businesses, including stocks and debt, without having to pay capital gains tax on any money made on those investments.
The move will support similarly well-publicised plans – originally announced during the autumn statement in November – to sell a portion of the government’s remaining 32% in NatWest Group to consumers this summer.
In his budget speech on Wednesday, Hunt said the sale was part of efforts to “create opportunities for a generation of new retail investors to engage with public markets”. The government is aiming to return NatWest to private ownership by 2026, almost two decades after its £46bn taxpayer bailout during the 2008 financial crisis.
The chancellor added that the UK government’s savings bank, NS&I, would launch British Savings Bonds that would guarantee a fixed interest rate for UK savers for three years. The product will go on sale in early April.
The British Isa will add to the existing stocks and shares Isa available to UK consumers, which gives account holders the ability to invest up to £20,000 tax-free, but without any restrictions on where companies they invest in are based.
The plans had been pushed by “200 representatives from the City and our high growth sector”, the chancellor said, and would “encourage more people to invest in UK assets” while boosting the competitiveness of UK stock markets.
He said the new Isa would “ensure British savers can benefit from the growth of the most promising UK businesses, as well as supporting those businesses with the capital to expand.”
However, consultation documents released on Wednesday said it may also allow tax-free investments in UK government bonds, which could divert money intended for UK companies.
Brian Byrnes, the head of personal finance at the investment platform Moneybox, said the product was also unlikely to benefit the vast majority of retail investors. “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.
Hunt stopped short of announcing any changes to the 0.5% stamp duty on direct share purchases, which lobby groups including TheCityUK and UK Finance have said may be hampering further stock market investment. The tax is applied to any stock investments outside exchange-traded funds (ETFs) and those on London’s Alternative Investment Market (Aim).
However, he pushed ahead with a consultation on a new platform that would allow private companies to offer a limited amount of shares for trading, without having to fully float on public stock markets. Government documents said that Pisces (Private Intermittent Securities and Capital Exchange System) would “allow private companies to scale and grow, and will boost the pipeline of future initial public offerings in the UK”.
