How a new ‘Starter ISA’ could work – and how it could make you money

Creating a new ISA is something of a Budget tradition. We’ve now had seven new accounts announced by Chancellors since 2010. Four have launched – the Junior ISA, the Innovative Finance ISA, the Lifetime ISA and the Help to Buy ISA. Three of these – except the Help to Buy product – are still open to savers. Shorts The Lifetime ISA, however, will soon be displaced by another new First-Time Buyer ISA announced in 2025. Of the three that haven’t yet been launched, the British ISA – a product that was set to give an extra tax-free allowance to those that invested in UK listed companies – never made it off the ground. The First-Time Buyer ISA, announced by Rachel Reeves last year, is set to launch in 2029. But on Wednesday, John Healey decided that Britain needed yet another iteration. “I will work with the sector to create a new ‘Starter ISA’ to reward first-time investors,” he said. Virtually zero detail was given on this, and the documents released with the Budget don’t add much clarity. “The government will work with industry to explore a new ISA incentive for people investing in a stocks and shares ISA for the first time,” it says. So what could this new ISA look like? And what is its purpose? The i Paper takes a look below. What are ISAs? At their core, ISAs, or individual savings accounts to give them their full names, are simple tax wrappers. Introduced by Tony Blair’s government in 1999 as an Individual Special Savings Account (ISSA), the accounts are exempt from income tax on interest and capital gains tax on the investment returns. The two simplest forms of the product – the cash ISA and stocks and shares ISA – have a flat £20,000 allowance of money that can be put into them. But in recent years, all the rules have been complicated, as various sub-divisions of ISAs have been introduced – each with their own regulations and allowances. The Help to Buy ISA, announced by George Osborne back in 2015, was a product that allowed you to save £200 a month – £2,400 a year – and have your savings topped up by the government when you bought your first home. George Osborne announced multiple new ISAs during his stint as Chancellor between 2010 and 2016 (Photo: Chris Ratcliffe/Bloomberg via Getty Images) But just four years after it was launched, it was closed to new entrants and replaced by the Lifetime ISA – which also gave you a bonus, but in which you could deposit £4,000 a year. You could also use the money for retirement. Now this replacement is set to be replaced itself – by a first-time buyer ISA, for which full details still remain unknown. “The ISA landscape is already a complex area and having multiple ISA types makes it difficult for savers to manage them,” says Rachel Springall, personal finance expert at financial data website Moneyfacts. Despite the different allowances on the multiple iterations of the ISA, savers maintain a £20,000 overall ISA allowance, so they need to remember how much they’ve put into each account – and understand the purpose of the various options. So why do we need another? Healey announced his new ‘Starter ISA’ alongside a U-turn on a policy that was supposed to launch from April next year. Under plans to get more Britons investing, ex-Chancellor Rachel Reeves had planned to cut the allowance on money that could be deposited in cash ISAs, from £20,000 to £12,000, for the under-65s. Former Chancellor Rachel Reeves planned to cut the cash ISA allowance – a move that John Healey has reversed (Photo: WPA Pool/Getty Images) The rest would have to go into stocks and shares or the rarely used innovative finance ISA, where people can put their money into peer-to-peer (P2P) lending or alternative investments. Healey canned the move, but clearly wanted to do something to get Britons putting their money into equities and assets rather than just cash. But some experts say that the last thing the UK needs is another ISA to further complicate the landscape. “We’ll engage with the government on the proposal for a Starter ISA but our central argument will likely focus on the need for simplicity,” says Tom Selby, director of public policy at investment platform AJ Bell. “There are already far too many versions of ISAs in the market which we know can be confusing and off-putting, particularly for new and inexperienced investors. We’ve long made the case that the best way to get people of all ages to invest is to make life as easy as possible for them,” he adds. In fact, instead of a new ISA, Selby argues the government should go the other way. “One ISA for cash and long-term investing would be the most effective way to help millions of people kickstart their investing journey,” he explains. If a starter ISA is launched, what could it look like? It’s unclear at the moment whether what Healey is announcing is a separate product for new investors, or an add-on to the stocks and shares ISA, that gives new users some sort of incentive. Recent research by wealth manager Rathbones found that more than a quarter of Britons view investing as too risky. These people may need some sort of carrot to start. Though investing can produce better returns than cash savings, your money can go down as well as up. With recent stock market dips coming as a result of the Iran War and tariffs imposed by the US, many may feel now isn’t the right time to dip their toes into the market. Trading platform IG proposes the government offers to match people’s first £1,000 invested as an incentive. “We are calling for a £1,000 first-investor bonus, with the government matching every pound contributed to a first Stocks & Shares ISA, up to £1,000. Our modelling shows that converting just 1 per cent of eligible non-investors could unlock nearly £1bn for equities, at a cost of around £450m to the Treasury,” says Michael Healy, CEO of IG Consumer. But would the government really go for a costly proposal like this when it is short on money? And how could it stop people from simply taking the government match and instantly withdrawing it? Healy thinks a powerful incentive is the only way to change behaviour, though he admits clear rules would be needed. “Ministers must now match their ambition with action and deliver an incentive powerful enough to change behaviour, without adding to the complexity that already holds savers back,” he says. But he agrees there would need to be some sort of timeframe in which money has to be kept in the account – to stop people simply pocketing the bonus and withdrawing. Springall says if money isn’t an option, the product could go for simplicity. “The Starter ISA could be created in a way to be more of a low-risk option. It might have more simple selection of diversified funds and capped fees,” she says. Investing in funds – which contain a range of investments – rather than individual stocks can be a good way for new investors to start off without having to make too many active decisions, and to have a diverse portfolio that is more protected when difficulties arise in certain industries or sectors. When could it launch? A starter ISA, whatever form it takes, is unlikely to be launched next tax year, according to industry insiders. “It would be rather ambitious for the Government to deliver a Starter ISA by April 2027, considering the previous idea of a British ISA was conceived and went under consultation before being later abandoned,” says Springall. It seems that 2028 or 2029 is a more likely launch date, if the idea gets off the ground at all.