Buy and sell shares in a tax-efficient ISA
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A self-select ISA is a type of stocks & shares ISA (as opposed to a cash ISA) which puts you in charge of your investments. Like with a regular stocks & shares ISA, it gives you the chance to invest in the stock market while retaining tax-efficiency, but with these accounts there’s no fund manager making your decisions for you. Instead, you’re free to choose which assets you hold in your ISA, putting you in complete control.
These particular accounts are usually offered by stockbrokers and wealth management arms of high-street banks, so they may take a little more research than traditional savings accounts. But, because investments are held within an ISA, they generate returns that are almost entirely free from income and capital gains tax, so this form of saving could be worth considering.
The maximum you can invest in a self-select ISA (or in any stocks & shares ISA) in the tax year 2016/17 is £15,240. You can choose to invest the full amount in a self-select ISA, or you might decide to split your allowance and invest part in a self-select ISA and the remainder in a cash ISA – it’s entirely up to you. You now also have the option of a new type of ISA which is the Innovative Finance ISA, which can be obtained from some peer-to-peer websites.
Self-select ISAs work by letting you choose which assets you want to invest in. You’re not investing in cash but are instead actively entering the stock market, and a wide range of assets can be held within a self-select ISA depending on your appetite for risk and investment strategy. These include individual shares, investment trusts, unit trusts, open-ended investment companies, bonds, gilts and exchange traded funds – it’s worth doing research to develop your strategy and see which ones might be right for you.
There are a number of self-select ISAs and methods available, and when choosing one you’ll need to decide whether you want to go through an execution-only broker or a firm which offers advice. Execution-only brokers will have the lowest fees as they’ll simply provide the online trading platform needed to trade shares and make other investments, whereas brokers that offer advice will charge more because they’ll actively help you decide which shares to pick based on your individual circumstances.
Because you’re picking the investments you hold within your ISA it gives you much greater control than if you handed things over to a fund manager, but bear in mind that you’ll need to actively monitor your investments and check they’re performing if you want to generate the best returns – if you don’t have the time or knowledge to do this, a self-select ISA may not be right for you.
However, the key advantage of a self-select ISA is the tax benefits. Any investment growth received is entirely free of capital gains and income tax, which could be particularly advantageous for higher rate taxpayers who want to maximise their returns. Most online platforms also make it incredibly easy to monitor the growth rate of your investments, offering an even greater level of confidence and control.
There’s also the flexibility for you to change the investments held within your ISA if you want to, again putting you in control and letting you develop your strategy. And remember that you can now move money held in investments into a cash ISA, should you change your mind at a later date and wish to return to the stability of cash.
Investing in self-select ISAs will be a lot riskier than opting for their cash-based counterparts. The value of these investments can fall as well as rise and there’s no guarantee that you’ll get back your initial investment. Your money is still covered by the Financial Services Compensation Scheme should your ISA provider go bust, but this time it’s up to a maximum of £50,000, rather than the full £75,000 protection with cash-based accounts.
It’s also worth remembering that because you’re in charge of your own investment strategy you’re also managing the risks yourself, but if you’ve got an appetite that can cope with it, these accounts could well merit consideration.
It can be difficult to know where to go for your self-select ISA, but the Moneyfacts Share Dealing Service enables you to open an account today at competitive rates.Click here to open an account today and see how easy it is to get started.
The Moneyfacts Share Dealing Service is a simple, low-cost service for buying and selling shares online. The share dealing service is provided by Jarvis Investment Management Ltd (Jarvis) and any legal or contractual relationship will be with Jarvis. Moneyfacts.co.uk Limited will introduce you to Jarvis. All dealing, administration and settlement in relation to these services is undertaken by Jarvis. You and Jarvis, not Moneyfacts.co.uk Limited, will be counterparties to each transaction. Jarvis is a member of the London Stock Exchange, and is an HM Revenue & Customs Approved ISA Manager and is authorised and regulated by the Financial Conduct Authority.
Please note that the value of your investments may rise or fall depending on stock market conditions, including market sentiment, and that you may not always recoup your initial investment. If you are in any doubt as to the suitability of any investment you should seek independent advice. The tax advantages of ISAs may change in the future and also be dependant on your individual circumstances.
The Moneyfacts Share Dealing Service is an execution only service and all investment decisions are made by you. No advice will be provided by Jarvis.
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