The Government is preparing to launch a British ISA to entice new savers, but experts claim this account will lead to some "challenges".
Last week, Chancellor Jeremy Hunt announced the creation of the tax-free savings product during the Spring Budget.
Through the British ISA, savers will benefit from an extra £5,000 allowance annually for investments in UK equity.
This allowance is on top of the existing yearly allowance worth £20,000 which can be split across multiple ISA products.
According to the Treasury, the British ISA will bolster the country’s economy, offer rewards to investors and support the private sector.
However, experts are warning of the “challenges raised” by the launch of such a product due to having a smaller target market.
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The British ISA is set to be launched but could face "challenges" on the market
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Steve Cameron, the pensions director at Aegon, described the British ISA as a “very nice” savings account.
He explained: “The British ISA is expected to appeal primarily to individuals who already fully use their existing £20,000 ISA allowance.
“Within this, those who have chosen to hold most or all in cash rather than stocks and shares are less likely to be suited to this.
“Even for individuals ‘maxing out’ their stocks and shares ISAs, there are questions over the appropriateness of increasing exposure to UK equities rather than spreading their investment risks through a more geographically diversified portfolio.”
However, he acknowledged that this will have to be weighed up against the savers’ individual interests to see if it is worth their time.
Cameron added: “A specific new product may not be the right way of going about it. Another option with potentially much wider scope would be for products to clearly explain upfront how much they invest in UK equities.
“This could be shown alongside other important aspects including investment risk profile and investment mix. Individual investors could then make informed decisions, perhaps with the help of advisers, on the extent to which they want to support the domestic economy while pursuing longer-term goals.
“This could extend beyond ISAs to other products, most notably pensions.
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ISAs are useful tools for those looking to save more than the personal savings allowance threshold without having to pay tax GETTY“The Chancellor is also proposing workplace pension schemes disclose the proportion of their funds invested in UK equities, so we need consistent definitions and language to avoid confusing consumers.”
During the Spring Budget, Hunt said: “After a consultation on its implementation, I will introduce a brand new British Isa which will allow an additional £5,000 annual investment for investments in UK equity with all the tax advantages of other ISAs.
“This will be on top of the existing Isa allowances and ensure that British savers can benefit from the growth of the most promising UK businesses as well as supporting them with the capital to help them expand.”
Consultation on the scope of the Government’s British ISA is currently live and will run until June 6, 2024