- Survey of over 1,800 retail investors pours cold water on ‘GB ISA’
- Over three-quarters say making ISAs UK-only is a bad idea
- ISA allowance remains unchanged since 2017/18 and raising it would naturally help increase UK share ownership thanks to home bias
- AJ Bell calls for ISA simplicity and urges chancellor to consider cutting stamp duty on UK shares instead
Retail investors are against any plans to divert some or all of the annual ISA allowance solely to UK assets, research from leading DIY investment platform AJ Bell shows.
A survey of over 1,800 investors conducted through AJ Bell’s online investing platform, which offers stocks and shares ISAs as well as pensions and dealing accounts, finds that just 14% support the idea of restricting ISAs to UK assets only.
Proposals put forward in an open letter last year called for the full £20,000 ISA allowance to be directed to UK company shares, with tax breaks on growth and income removed on overseas investments*. The measures would prevent investors holding a globally diversified portfolio inside an ISA wrapper, compelling investors to pay tax for holding shares in overseas firms.
Although it is unlikely the government would pursue such a radical proposal, ministers are reported to have explored a range of options to direct ISA investment to UK assets. This is reported to include restricting some or all the ISA allowance to UK assets, or introducing a separate ‘GB ISA’ allowance.
AJ Bell’s data found little support for the proposal, with over three quarters (77%) saying they believed it was a bad idea to limit ISAs to UK assets.
Asked if they’d support a new GB ISA in addition to the existing ISA allowance, 28% were in favour. Although more than half (57%) believe a better option would simply be to extend the existing ISA allowance.
Increasing the ISA allowance would help achieve an increase in retail investor ownership of UK shares, without the complexity of reforming ISA regulation, because investors tend to hold a natural ‘home bias’ to UK assets anyway.
AJ Bell continues to call on the government to focus on keeping ISAs as simple as possible, avoiding extra rules and restrictions on ISAs.
A more effective strategy for boosting the attractiveness of UK shares would be to abandon Stamp Duty (and Stamp Duty Reserve Tax) on UK assets.
Investors purchasing UK shares and investment trusts are subject to a 0.5% tax, even within an ISA where the growth and income on those investments is tax free.
In contrast, the purchase of shares in non-UK companies is untaxed.
*’Investing in Britain’ letter published in the Times in November 2023 (Investing in Britain)
AJ Bell D2C managing director Charlie Musson says:
“ISAs have been a massive success since their introduction nearly 25 years ago, thanks in no small part to their simplicity. They allow investors to hold shares, funds and bonds in an easy-to-use product, without worrying about tax on the money they make.
“Extra rules to limit investment to UK assets would complicate a simple product and punish investors for holding a globally diversified portfolio.
“There are far better ways to encourage retail investors to take a stake in UK plc. At next week’s Budget the chancellor could instead cut stamp duty on UK shares in order to level the playing field, which is currently tilted in favour of overseas assets.
“Each time an investor buys a UK share they pay 0.5% of the value of the transaction in Stamp Duty. So the government takes £50 if you want to buy £10,000 AstraZeneca shares, but not if you want to buy the same stake in Amazon.
“Many ISA holders use funds to build a portfolio, and the tax creates a drag on the performance of UK equity funds. Dropping it could boost returns for investors in funds that hold FTSE-listed companies.
“The chancellor could also look to increase the existing ISA allowance, which naturally helps encourage UK share ownership since retail investors tend to hold a home bias toward domestic shares.”
AJ Bell Research:
Source: AJ Bell. Survey of 1,850 customers in February 2024. Q: How would you react if an ISA could only be used to invest in UK assets? (You could still invest in overseas assets, but without the tax breaks provided by an ISA.)
Source: AJ Bell. Survey of 1,850 customers in February 2024. Q: Which statement best reflects your views on introducing a new ISA, or additional ISA allowance, solely for UK assets?