UK ISA is a good sign that Government is supportive of UK business and UK companies
UK ISA needs a fillip to be fully effective. ShareSoc suggests
• removal of stamp duty; and
• much more financial education.
ShareSoc is pleased to respond to this UK ISA consultation. We strongly suggest that the UK ISA is given a significant fillip by removing the 0.5% stamp duty on purchases of those shares within the UK ISA. Apart from ensuring there is a clear financial incentive to add funds into a UK ISA, it will have minimal downside risk to the current tax take from Stamp Duty and will hopefully therefore be acceptable to Treasury. It won’t cost as much as the abolition of stamp duty on all UK shares, which we also strongly support and believe there is a prima facie business case for.
A UK ISA ought to be a good way to get people started with investing in shares. UK company shares are much easier to research, assess and monitor than shares in overseas companies. Many UK companies will be ones that people deal with on a day-to-day basis. They may have friends, relatives and acquaintances who work for them. They themselves may even work for the company. However, there is a basic need to overcome the significant and widespread suspicion and mistrust, here in the UK, of investing in shares. There are a lot of people with sufficient money to save who believe that shares are risky and that things like property are a much better bet or that they are better off spending the money so that the state (AKA the taxpayer, you and me) can support them in their old age.
There has to be a serious education initiative to support this UK ISA and investing in British companies in general, to illustrate how beneficial it is on both a personal and societal level.
The support from this Government for UK companies and the investment industry via the UK ISA is most welcome. With more visible Government support, hopefully an increasing proportion of savings will be invested in UK companies (the majority of ISA funds are Cash ISAs, which in our view causes consumer harm, as cash hugely underperforms equities over the long term). Also, existing investors may allocate more of their investment portfolios to UK companies. If overseas investors see that the UK is open for business and producing more business-friendly policies, this may reverse the trend since 2016 of reducing their % asset allocation to the UK. Combined, these effects, along with other policy and regulatory initiatives, will hopefully play a part in restoring UK stock market valuations to match global peers.
On a cautionary note, we fear that the proposal does not recognise the root causes of less money being invested, outside of tax shelters, in the UK stock market by UK citizens.
In addition, the withdrawal of capital gains tax allowances, (especially when combined with an increase of those investors likely to have spare capital to invest falling into higher tax bands) serves further to reduce the expected net return. At the same time, the real yields available on gilts, particularly indexed linked, rose, so on balance bond investment increased in attractiveness vis a vis equities.
The implementation route of adding the UK ISA, in addition to existing ISAs and their limits, has removed many lines of objection/criticism and we view this as a particularly positive step to getting the new UK ISA up and running quickly.
As it stands, we fear that the UK ISA will only attract seasoned investors looking for an additional £5k of ISA allowance. These are people who will (legitimately) ‘game’ the system by holding their UK company shares in their UK ISA and going overweight on overseas shares in their general ISA.
There should be a cost benefit analysis. It is important that policy decisions are underpinned by data, logic and mathematical modelling. This discipline will greatly help the Treasury and Government prioritise their work.
For many years, Government has managed investment strategy on a piecemeal basis and not as part of a cohesive integrated long-term plan. Too often Government actions have been driven by short term considerations, dogma and the desire for short term media headlines. The supposed benefits of Brexit have not been achieved as City reforms have not been enacted and gold-plating of EU rules continues to apply. The UK stock market has been allowed to dwindle in global importance and is now only 3% of the global market.
The consultation can be read here
ShareSoc’s response can be read here
Post Date: June 6, 2024
6 Comments
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There is nothing more off-putting in the UK market than the role of the “regulator”. Rules are rules, and we all expect them to be properly monitored and enforced so that we have an “orderly market” that is trusted by buyers and sellers.
I can see the Woodford Equity Income Fund and at least 3 other fully regulated SIPPs where the FCA has withdrawn FOS and FSCS access at the drop of a hat – with no warning or reason. The FOS and FSCS guarantees were available when you entered into these products. This is effectively a broken promise – one that clearly is going to be broken again in the future.
Given the above risks, which professional investors already carry, I would argue that retail investment products are now massively over-priced and that all of the Value for Money (aka Assessmnent of Value) Disclosures produced by fund management firms are inaccurate as they do not factor in the regulatory risks introduced by our own regulator.
Global financial centres are deregulating and this is only going to get worse. I now hold only a few actively managed products and am now passive, in the main, as a result.
Removing stamp duty from the new ISA only would probably make it a home for people doing short-term trading, which is unlikely to match what the government would want.
the best offer is to simply drop payment of stamp duty on shares in the uk
I have replied to this directly. I suspect with the Election coming this will not go ahead. It sounded like a good idea when announced, but it was obviously announced without much though being given to how it will operate. There are so many scenarios which complicate things. It needs to be simple to administrate, and that is hard if the objectives are to be achieved. They want it to be investments which are primarily British, so Bellway would qualify, but BHP not. Where do you draw the line? And how do you cope when business mix changes? what happens if you own a British company in a UK ISA & it is taken over by a foreign company in an all equity payment? Can you transfer holdings from a Shares ISA to a UK ISA and free up a greater allowance in your Shares ISA? Many many more complications to be thought through before it can be introduced.
I agree with all the above particularly how complicated it will be to design in a user friendly way as well as uk investment positive. Unfortunately LSE is consumed with the task of remaining a global equity exchange of significance to all investors particularly Big E & private investors.
It’s been reported that the new government are dropping this, so probably all questions are moot.