Home Business News British ISA could boost UK tax-free savings by £59 billion

British ISA could boost UK tax-free savings by £59 billion

5th Apr 24 9:49 am

Analysis by peer-to-peer real estate investment platform, easyMoney, reveals that the government’s proposed British ISA could add a potential £59 billion to the UK savings landscape.

During the recent Spring Budget, the UK government announced plans to introduce a new British ISA which will give UK savers an additional tax-free ISA allowance of £5,000 in addition to the existing £20,000 allowance, with which they can invest in UK-focused assets.

easyMoney has analysed the most recent ISA savings data* to understand how ISA investment has changed over the past year, and how much additional investment capital could potentially be created by the new British ISA.

easyMoney’s analysis reveals that overall ISA investment in the UK has fallen.

Provisional figures for the year 2021-22 (latest available data) reveals that the number of ISA account subscriptions has fallen by -3.8% on the year to sit at a current total of 11.75 million.

Total ISA savings currently come to £67 billion. This marks an annual drop of -7.3%, while average investment per ISA account has fallen by -3.7% to sit at £5,696.

However, this decline in ISA savings has been driven largely by a reduction in traditional Cash ISA investment for which the number of subscriptions has fallen by -11.4% on the year. As a result, the level of total investment in Cash ISAs has also fallen by -16%, with average investment per subscription down by -5.2%.

Despite the fading favour for Cash ISAs, the data shows that investors are clearly still keen to make the most of their tax-free allowance, but to do so they are opting to invest in less traditional types of ISA.

Non-traditional ISAs have seen healthy growth in the past year. Lifetime ISAs have seen the total amount invested increase by 14.7% to sit at a current total of £1.7 billion, while Innovative Finance ISAs (IFISAS) have seen astonishing investment growth of 56.5%, with the total amount invested rising from £92 million to £144 million in just 12 months.

IFISAs are by far the most niche of all types of ISA, and this non-traditional choice clearly appeals to investors, a fact further proven by the number of IFISA subscriptions growing by 6.3% and the average investment per subscription growing by a massive 47.3% to sit at £8,471. This is almost double the average for Cash ISAs (£4,329).

Introducing the British ISA

This growing interest in alternative ISAs suggests that the promised British ISA could prove very popular indeed as it provides even more variety and choice for discerning investors.

Figures from easyMoney show that if all current ISA investors opt to utilise the additional £5,000 allowance of the British ISA, it would add £58.8 billion to the ISA landscape.

Even if just a quarter of current ISA investors took up the British ISA offer, it would increase overall ISA investment by £14.7 billion.

Jason Ferrando, CEO of easyMoney said, “We have witnessed a staggering rise in alternative ISA investment over the past few years with Innovative Finance ISAs leading the charge. Investors both professional and amateur are increasingly aware that there are better returns to be gained through alternative ISAs than there are in a more traditional Cash or Stocks & Shares ISA, and there is also an increasing urge among the public to keep traditional finance institutions such as high street banks at arm’s-length.

The British ISA has been envisioned to boost UK savings and boost investment into UK enterprise. We eagerly anticipate news on what sort of returns the new ISA will offer, and if it’s strong, we expect there to be strong take-up from people looking to take advantage of the additional tax-free allowance.

But it remains to be seen whether the British ISA will prove anywhere near as popular as the Innovative Finance ISA. Our IFISA product is in huge demand because it offers such strong and reliable returns, while enabling people to support peer-to-peer lending instead of entrusting their wealth to the mainstream financial institutions.”

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