Half of people are attracted to a British Isa and one in five are definitely keen to take up the opportunity, new research reveals.
But the snap poll reveals a quarter of people will not consider using the new Isa, which was announced in the Budget earlier this month but is not likely to be launched for another year.
The British Isa will offer the chance to invest £5,000 a year tax free in UK assets, on top of the existing allowance to put £20,000 in cash or shares – home or overseas – in each tax year.
British Isa: Earliest likely launch date is thought to be April 2025.
People who already have an Isa are most interested at 57 per cent overall, but that rises to 63 per cent among those with a stocks and shares Isa, according to the survey by research firm Opinium.
Among those shunning the British Isa, 26 per cent lacked the money, 22 per cent were not interested in investing in UK assets, and 21 per cent didn’t know enough about it.
Some 18 per cent preferred to use the existing £20,000 annual Isa allowance – where you can invest in UK assets without restriction – and 16 per cent thought the returns would not be as good as from other savings or investment products.
‘There is a significant amount of potential interest from the public in the new product, particularly among those with an existing Isa,’ says Alexa Nightingale, head of financial services research at Opinium.
‘The British Isa is unlikely to be available until next year as the rules around it are currently being consulted on.’
In the days immediately following the Budget, her firm surveyed 2,000 UK adults who were nationally representative on age, gender, region, employment status and social grade. Some 6 per cent said they didn’t have any savings or investments products.
This is Money has carried out a reader poll, which showed 42 per cent wanted to invest in the British Isa, and 20 per cent were waiting to find out the rules first, at the time of writing.
News of a British Isa has generated debate about ‘home bias’, a behavourial trap investors are regularly warned against, although there are advantages including superior local knowledge and being invested in your own currency.
This is Money’s Publisher, Simon Lambert, points out the UK makes up less than 4 per cent of the global stock market, so if investors take full advantage of the British Isa they will be sticking 20 per cent of a new total annual allowance of £25,000 into the UK – read his take below.
The plan prompted a warning from Steven Cameron, pensions director at Aegon, who says: ‘While we understand why the Chancellor wants to encourage more investment in UK companies, the financial regulator, the Financial Conduct Authority, recently introduced new “Consumer Duty” regulations meaning financial providers must demonstrate any product they sell offers good value for a specific target group of customers.
‘The proposed British Isa could raise challenges here as it will have a particularly narrow target market.
‘Even for individuals “maxing out” their stocks and shares Isas, there are questions over the appropriateness of increasing exposure to UK equities rather than spreading their investment risks through a more geographically diversified portfolio.’
Cameron suggests having financial products clearly labelled with how much they invest in UK equities, alongside their risk profile and investment mix.
‘Individual investors could then make informed decisions, perhaps with the help of advisers, on the extent to which they want to support the domestic economy while pursuing longer-term goals.’
A Treasury spokesperson says: ‘The UK Isa creates a tax-free investment opportunity to encourage more people to invest in the UK and benefit from the growth of the most promising UK businesses.
‘We are currently consulting on the design and implementation of the UK Isa.’
The consultation is open until to 6 June 2024: UK Isa consultation.
Home bias: What are the pros and cons
Home bias in investing offers some natural advantages, in terms of local knowledge and being invested in your own currency.
The biggest UK companies make a lot of money overseas so the supposedly ‘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 defies the usual investing wisdom to spread your risk, and cuts you off from valuable opportunities and innovations that originate overseas.
The FTSE 100 in particular is dominated by a few industries, like 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 British Isa or stocks in general is that the UK stock market looks cheap
This is Money’s Publisher, Simon Lambert, says:
The UK makes up less than 4 per cent of the global stock market, which is why Britain’s amateur investors are regularly warned against home bias.
This is a behavioural investing trap that it’s easy to fall into when you consume a diet that’s heavy on news about UK companies, while snacking on the thoughts of UK-focused fund managers and experts and enjoying a few cups of FTSE 100 updates a day.
You wouldn’t need to dig too deep in the portfolios of many active British investors to find that they don’t reflect something like the MSCI global index.
Here the US stock market makes up 71 per cent, Japan, 6.2 per cent and the UK 3.75 per cent – just ahead of France on 3.15 per cent.
If you’ve got 10 per cent of your total investments in London-listed stocks, you are taking a big bet on the UK market.
In his Budget, Jeremy Hunt enthusiastically announced his new British Isa with an extra £5,000 tax-free allowance for backing UK listed firms.
If investors take advantage, they will be sticking £5,000 out of a new bigger total annual Isa allowance of £25,000 into the UK.
That’s a 20 per cent weighting, which you don’t need to be a statistical wizard to understand is considerably bigger than 3.75 per cent.
The good news for those considering backing a British Isa or stocks in general is that the UK stock market looks cheap. That’s the flipside of all that underperformance that we’ve seen from UK shares in recent years.
And while the UK market seems to lack a catalyst to get those undervalued shares moving up en-masse, that’s not true of individual stocks.
This post first appeared on Dailymail.co.uk
