New ISA rules that make it easier for people to invest directly into small businesses have been announced and should be available from the autumn.
The changes being brought forward by the government will simplify direct ISA investment in small and medium sized businesses (SMEs).
This forms part of the government’s commitment to help smaller companies succeed by promoting investment to deliver sustainable economic growth.
The government wants to ensure that businesses, particularly small businesses, are able to access finance and support. This change should benefit SMEs with shares quoted on markets that do not currently qualify for ISAs. For example, over one thousand companies listed on the Alternative Investment Market (AIM) will now be eligible for direct ISA investment.
At a time when many SMEs are looking for alternative types of finance, this change could provide a major capital injection for SME equity markets and encourage investment in growing businesses. Under current rules, over £190 billion of the £391 billion invested into UK ISAs are held in existing stocks and shares ISAs.
The changes will provide savers with a tax efficient way to hold shares traded on SME markets. Until now ISA investors have only been allowed to directly invest in shares listed on recognised stock exchanges. Widening the range of eligible shares will improve consumer choice for ISA investors.
The change means that an individual saver could invest up to £11,520 in the current tax year directly into SME equity markets within their ISA and any gains arising from the growth of the investment would be tax-free.
At the end of 2011-12 the market value of adult ISA holdings stood at £391 billion, over £190 billion of which was in stocks and shares ISAs. The tax relief that the government provides on saving in ISAs was worth an estimated £1.75 billion in 2011-12, and this figure is rising over time.
Economic Secretary to the Treasury, Sajid Javid said:
The government is determined that small businesses are given every opportunity to fulfil their potential. We want the UK to be the best place to start and grow a business. Central to achieving that is access to finance.
We are fulfilling our commitment. Today’s changes to ISA rules will allow SMEs to access another source of funding and follows the Budget announcement to abolish stamp duty on shares traded on growth equity markets. Together these changes will make investing in SMEs more attractive and boost growth.
Photo by Images_of_Money on Flickr. Used under Creative Commons.