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Half of people are attracted to a British Isa and one in five absolutely want to take up the opportunity, new research shows.
But the snap poll shows a quarter of people will not consider using the new Isa, which was announced in the Budget earlier this month but is unlikely to be launched for another year.
The UK Isa will offer the chance to invest £5,000 a year tax-free in UK assets, on top of the existing option to invest £20,000 in cash or shares – at home or abroad – in each tax year.
UK Isa: The earliest likely launch date is believed to be April 2025.
People who already have an Isa are the most interested at 57 per cent overall, but this rises to 63 per cent among those with a share Isa, according to research from research firm Opinium.
Of those avoiding the UK Isa, 26 per cent lacked money, 22 per cent were not interested in investing in UK assets, and 21 per cent did not know enough about it.
Around 18 per cent preferred to use the existing £20,000 annual Isa allowance – where you can invest in UK assets without limits – and 16 per cent thought returns would not be as good as other savings or investment products.
“There is a significant amount of potential public interest in the new product, particularly among those with an existing Isa,” said Alexa Nightingale, head of financial services research at Opinium.
‘The UK Isa is unlikely to be available until next year as consultations are currently underway on the rules around it.’
In the days immediately following the Budget, her company surveyed 2,000 British adults who were nationally representative in terms of age, gender, region, employment status and social rank. About 6 percent indicate that they have no savings or investment products.
This is Money conducted a reader survey which found that 42 per cent wanted to invest in the UK Isa, and at the time of writing 20 per cent wanted to know the rules first.
News of a UK Isa has sparked debate about ‘home bias’, a behavioral pitfall that investors are regularly warned about, although there are also benefits such as superior local knowledge and investing in your home currency.
This is Money’s Publisher, Simon Lambert, points out that Britain represents less than 4 percent of the global stock market, so if investors take full advantage of the British Isa they will transfer 20 percent of a new total annual allowance of £25,000 to Britain – read his opinion below.
The plan prompted a warning from Steven Cameron, pensions director at Aegon, who said: ‘While we understand why the Chancellor wants to encourage more investment in UK businesses, the financial regulator, the Financial Conduct Authority, has recently introduced new ‘Consumer Duty’ rules introduced. This means that financial providers must demonstrate that each product they sell offers good value to a specific target group of customers.
‘The proposed UK Isa could pose challenges here as it will have a particularly narrow target market.
‘Even for individuals ‘maxing out’ their stocks and shares Isas, there are questions about the advisability of increasing exposure to UK shares rather than spreading their investment risks through a more geographically diversified portfolio.’
Cameron proposes that financial products should be clearly labeled with how much they invest in UK shares, in addition to their risk profile and investment mix.
‘Individual investors could then make informed decisions, perhaps with the help of advisors, about how much they want to support the domestic economy while pursuing longer-term objectives.’
A Treasury spokesperson said: ‘The UK Isa creates a tax-free investment opportunity to encourage more people to invest in Britain and benefit from the growth of Britain’s most promising companies.
‘We are currently advising on the design and implementation of the UK Isa.’
The consultation is open until June 6, 2024: UK Isa consultation.
The British Isa: What you need to know…
Home bias: what are the pros and cons
Home country bias in investing offers a number of natural advantages, in terms of local knowledge and the fact that you are investing in your home currency.
The biggest British companies make a lot of money abroad, so the so-called ‘home market’ is internationally focused. If you are an income investor, it is also a solid generator of dividends
But there are clear downsides to focusing too narrowly on one market, which goes against conventional investment wisdom to spread your risk, and cuts you off from valuable opportunities and innovations coming from abroad.
The FTSE 100 in particular is dominated by a number of sectors, such as commodities and financials, which can have an outsized effect on a portfolio when they are in or out of favour.
How much UK exposure do YOU want?
Simon Lambert: The good news for those considering backing a UK Isa or shares in general is that the UK stock market looks cheap
This is Money publisher Simon Lambert saying:
Britain represents less than 4 percent of the global stock market, which is why amateur British investors are regularly warned about domestic bias.
This is a behavioral investing trap that you can easily fall into if you follow a diet heavy on news about UK companies, while feasting on the thoughts of UK-focused fund managers and experts and enjoying a couple of cups of FTSE 100 updates a day.
You don’t have to dig deep into the portfolios of many active UK investors to discover that they don’t reflect anything like the MSCI Global Index.
Here the US stock market represents 71 percent, Japan 6.2 percent and Britain 3.75 percent – just ahead of France with 3.15 percent.
If you have 10 percent of your total investments in London-listed shares, you’re making a big bet on the UK market.
In his Budget, Jeremy Hunt enthusiastically announced his new UK Isa, with an extra £5,000 tax-free allowance to support UK listed companies.
If investors take advantage, they will put £5,000 out of a new, bigger total annual Isa allowance of £25,000 in Britain.
That’s a 20 percent weighting, which you don’t have to be a statistical wizard to understand is significantly larger than 3.75 percent.
The good news for those considering backing a UK Isa or shares in general is that the UK stock market looks cheap. That’s the downside to all the underperformance we’ve seen from UK shares in recent years.
And while the UK market doesn’t seem to have a catalyst for those undervalued shares to rise en masse, the same cannot be said for individual shares.
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