ISAs allowed to invest in development bodies

It is proposed that from 16 December 2008, any ISA (tax-free Individual Savings Account) will be able to invest in bonds issued by a Multilateral Institution: broadly, a not-for-profit body engaged in third-world development work.

Baker Tilly analysis

ISAs were created as a tax-free investment vehicle for the ordinary taxpayer, enabling the investor to save up to £7,200 a year and not pay UK tax on the resulting income.

The types of securities that can be held in an ISA are restricted to those issued by a UK or European government, or by a company which has a share capital.

Under this proposal an ISA would be able to invest in bonds issued by a Multilateral Institution. This is a welcome development which it is hoped will encourage investors to support the useful work done by such organizations.

In detail

The Individual Savings Account Regulations 1998 (S.I.1998/1870) specify the type of investments that may be made by an ISA. At present, securities are only eligible if they are issued by the UK Government, a European government, or a company with a share capital.

In recent years there has been considerable growth in the number and size of multilateral development institutions, not-for-profit bodies which receive grants from national governments and apply the funds on projects to reduce third-world poverty and deprivation. Many of these bodies raise additional funds by issuing bonds on the international markets, but at present an ISA cannot invest in these bonds.

Under the current proposal, from 16 December 2008 an ISA will be able to hold bonds of this type. Strictly speaking this is still at the consultation stage, but it seems unlikely that it will not be embodied in a change to the regulations.