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Blue piggy bank | AccountingWEB | Savings products launched but LISA changes absent
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Savings products launched but LISA changes absent

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Amy Chin looks at the two new savings products announced in the Spring Budget and touches on the absence of any LISA updates.

6th Mar 2024
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To stimulate investment in UK companies and encourage individuals to save as part of the ‘Budget for long term growth’, the Chancellor has announced two new savings products: a UK ISA and British Savings Bonds.

New UK ISA

To channel more investment into UK equities, the UK ISA will allow individuals an additional £5,000 per year tax-free, on top of the existing ISA allowance (currently £20,000 per year) to invest in UK-focused assets.

It’s easy to see why the Chancellor - keen to attract voters but with very little fiscal headroom to play with - would plump for a no-cost measure such as UK ISAs. The benefit for UK companies of incentivising individuals to invest in their securities is clear, but it may not be the best approach for the individual saver.

John Donnelly, of Donnelly Financial Advice, explains: “The asset classes will be reduced to just UK equities, which could cause an overweight in UK equities for individual savers. It is a good incentive to contribute to the UK economy but for the individual it is usually more sensible to take a more diversified approach.”

Concerns have also been raised about the danger of over-burdening the FTSE. Dan Neidle, founder of Tax Policy Associates, told AccountingWEB: “The FTSE is a poorly performing and highly concentrated index, and the underlying businesses are only about 25% in the UK. Very hard to see why it’s a good idea to push retail investors into investing more heavily into it.

 

“A global tracker fund will make more sense for most people.”

Encouraging saving

Further encouraging a culture of saving by increasing the options open to individuals, the British Savings Bonds, delivered through National Savings and Investments, will offer a guaranteed interest rate fixed for three years.

There is little information and no timetable available on this but expect more to come following government consultation.

The government has also promised to bring forward legislation to clarify the position on fractional share contracts, which was promised in the Autumn Statement. According to the Red Book, this should be completed by the end of the summer and will further support savers investing in a diverse range of investment types.

No change to LISAs

Fans of Martin Lewis will have been disappointed at the absence of hoped-for changes to the lifetime ISA (LISA) scheme.

Designed to help 18-40 year olds get onto the housing ladder, the LISA allows people in that age bracket to save up to £4,000 a year tax-free, with an additional 25% bonus added by the government, up to a maximum of £1,000 free cash each year.

The catch is that unless the funds saved in the LISA are used to purchase a first home up to a maximum value of £450,000 (or the buyer is over 60 years old), they are subject to a 25% withdrawal penalty.

This is particularly unfair for young savers in areas such as London, Surrey and St Albans (to name a few) where average first-time-buyer property prices exceeded £450,000 in the 12 months to April 2023, according to an investigation by MoneySavingExpert.com.

An overhaul of the LISA rules either removing the penalty or increasing the purchase price ceiling was expected but sadly absent from the Chancellor’s Spring Budget 2024.

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