Spring Budget 2024: UK ISA announced

8 March 2024 — Facing an upcoming election and a fragile UK economic climate, the Chancellor of the Exchequer was challenged with crafting a Spring Budget that balanced voter appeal with a perception of responsible fiscal management.
 
Therefore, while the tax landscape is set to be altered significantly, the government took no chances with a budget that is expected to do little to change the fundamental economic picture.
 
The list of tax reforms started with a further 2p cut to National Insurance contributions, marking one of the largest individual tax reductions in UK history. Additionally, the non-domiciled resident “non-dom” tax regime is to be replaced with a new system, while adjustments to the child benefit system will see the High-Income Child Benefit Charge threshold lifted.

Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and the ISA and tax rules can change. Chelsea does not offer advice and so you must manage your ISA yourself.

For savers and investors, here are the key announcements to take note of:

• Firstly, the Chancellor unveiled plans for a British ISA, or BRISA, to reignite sluggish UK stock market returns and funnel money into UK businesses. The new product will allow individuals to invest an extra £5,000 into UK equities tax-free on top of the existing £20,000 ISA subscription limit.
• Secondly, the Chancellor outlined intentions to require local authorities and defined contribution (DC) pension funds to disclose how much they have invested into UK shares.

Both of these measures are part of government efforts to encourage investment into British companies, however, the budget fell short of mandating pension funds to allocate a certain amount to UK plc.
 
Following these announcements, Darius McDermott, managing director of Chelsea Financial Services, commented: “We welcome the announcement of the British ISA. Investing in our great UK businesses helps to boost our economy and attract foreign investment. Allowing people to invest up to £5,000, tax-free every year in UK assets - on top of the existing allowance - is also a great way to help support our savers on their long-term investment journeys.
 
"However, we believe the government must do more, and compel UK pension funds to invest more in UK-listed companies. This budget was a missed opportunity to mandate institutions to boost our economy and markets. The bottom-line is that the British ISA does not deliver the stimulus we need to boost flagging UK markets, but it is a good start.”

Funds to consider:

TM Tellworth UK Smaller Companies

Managers Paul Marriage and James Gerlis specialise in what they call the ‘toddlers’ of the UK equity spectrum – companies that can walk and talk and sustain themselves, but are still in their growth phase. By applying meticulous research and a series of investment screens, alongside a heavy emphasis on management meetings, the fund seeks out under-researched UK smaller companies where they see potential to add outperformance.

Artemis Income

For a traditional equity income fund, Artemis Income merits consideration. The fund currently has 84.4% of the portfolio in large caps, including prominent names like BP, GSK, and RELX within its top ten holdings*. With a two-decade track record of stability, the managers prioritise diversification across various sectors and companies to deliver a sustainable and consistent income stream. This well-established approach is currently reflected in the fund's attractive yield of 3.72%**.

IFSL Marlborough Multi Cap Income

Investors seeking to diversify their income stream beyond the FTSE 100 may find the IFSL Marlborough Multi Cap Income fund appealing. The fund's manager, Siddarth Chand Lall, employs a diversified investment strategy by incorporating both established FTSE 350 constituents and smaller, high-growth companies. This approach is underpinned by the long-term outperformance potential often exhibited by smaller companies.

*Source: Artemis, at 31 January 2024
**Source: Artemis, at 7 March 2024

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.