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What are the benefits of a shares ISA
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MSE_Martin
Posts: 8,272 Money Saving Expert
I thought this note by discount broker Chartwell an interesting one.
What’s the point in investing in an shares ISA these days?
This is a rhetorical question that Chartwell have heard from many quarters, not just from investors but from industry commentators and even from company representatives themselves.
Admittedly since the Government’s decision to remove the ability to reclaim the 10% tax credit on income derived from equities, ISAs have lost a clear attraction to investors.
However, we should not be quick to write them off. At Chartwell, we believe that there are still several sound reasons for investing in ISAs, namely:
· Fixed interest funds pay out income free of tax. Fixed interest funds are paid net of 20% tax credit, which can still be reclaimed in full by the ISA manager.
· Higher rate taxpayers do not have to pay the additional 22.5% income tax they would ordinarily have to pay on equity income.
· Income from ISAs does not affect the age allowance. Anyone aged over 65 receives an increased personal tax allowance and if they receive income in excess of the £18,900 (the current age allowance limit) the amount of personal tax allowance decreases.
· Income from ISAs does not affect tax credits. As per the age allowance, any income from ISAs is not used when calculating Working Tax Credit and/or Child Tax Credit entitlements.
· Any growth achieved in an ISA is not liable to CGT. Many argue that it would be a rare occurrence indeed if an ISA achieved enough capital growth to exceed an individual’s annual CGT exemption. Nevertheless, it is of benefit to any individual who has to pay CGT or investors who realise gains up to the annual CGT exemption limit.
· Investors do not have to account to the Inland Revenue for any income received or on any capital gains on disposal.
These reasons lead to our final argument for ISAs: why hold an investment outside of an ISA when there is no additional charge or penalty for holding the same investment within an ISA wrapper…
as there are still benefits to be had.
What’s the point in investing in an shares ISA these days?
This is a rhetorical question that Chartwell have heard from many quarters, not just from investors but from industry commentators and even from company representatives themselves.
Admittedly since the Government’s decision to remove the ability to reclaim the 10% tax credit on income derived from equities, ISAs have lost a clear attraction to investors.
However, we should not be quick to write them off. At Chartwell, we believe that there are still several sound reasons for investing in ISAs, namely:
· Fixed interest funds pay out income free of tax. Fixed interest funds are paid net of 20% tax credit, which can still be reclaimed in full by the ISA manager.
· Higher rate taxpayers do not have to pay the additional 22.5% income tax they would ordinarily have to pay on equity income.
· Income from ISAs does not affect the age allowance. Anyone aged over 65 receives an increased personal tax allowance and if they receive income in excess of the £18,900 (the current age allowance limit) the amount of personal tax allowance decreases.
· Income from ISAs does not affect tax credits. As per the age allowance, any income from ISAs is not used when calculating Working Tax Credit and/or Child Tax Credit entitlements.
· Any growth achieved in an ISA is not liable to CGT. Many argue that it would be a rare occurrence indeed if an ISA achieved enough capital growth to exceed an individual’s annual CGT exemption. Nevertheless, it is of benefit to any individual who has to pay CGT or investors who realise gains up to the annual CGT exemption limit.
· Investors do not have to account to the Inland Revenue for any income received or on any capital gains on disposal.
These reasons lead to our final argument for ISAs: why hold an investment outside of an ISA when there is no additional charge or penalty for holding the same investment within an ISA wrapper…
as there are still benefits to be had.
Martin Lewis, Money Saving Expert.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.
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Comments
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Another positive is in the self select ISA's Fixed Interest Stock is paid gross interest, and then there are the PIB's also.0
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A balanced portfolio should always include interest-bearing stocks in addition to dividend-bearing ones.
I would have thought it sensible for investors to use Stocks & Shares ISAs for investing in interest-bearing stock (e.g. corporate bonds) where taxpayers cans save at least 20%. Dividend-bearing stock can be invested outside an ISA.0 -
So whose offering the cheapest/best self-select maxi isa?
Hoodless & B do a £50 yearly fee. £7 trades
Halifax have a 0.05% charge per month(min £2.16; max £8.33 per month) £11.95 trades
comdirect/squaregain have that free £75 offer which would pay for 3 years of their £25 a year management fee. £12.50 trades
idealing.com have a £5 a qtr fee, with £9.95 trades
What are other people using?
I'm thinking the best would be the cheapest, unless nominee rights make it not as a good choice.
So for me, comdirect looks the best, as they pay for 3 years of fees with the offer, but the trades are slightly higher then the others. So I guess its a trade off (pardon the pun) between management fee and trades.0
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