Self select share ISA ?

pazzazz

Hi
I'm wondering on the advantages of holding shares within a self select isa ?
I think I understand that:
capital gain would be tax free ?
dividends are still taxed ?
given that brokers seem to charge £25+ pa plus normal trading costs to operate these isas are they worth it ?

If invested to the maximum for that year what happens with dividend payments ? (I assume that you couldn't automatically reinvest as that would take you over the limit)

thanks for any help

P

cloud_dog

pazzazz wrote:

Hi
I'm wondering on the advantages of holding shares within a self select isa ?
I think I understand that:
capital gain would be tax free ?

Yes

dividends are still taxed ?

Yes but no additional taxation for higher rate tax payers

given that brokers seem to charge £25+ pa plus normal trading costs to operate these isas are they worth it ?

Depends on your circumstances.

If invested to the maximum for that year what happens with dividend payments ? (I assume that you couldn't automatically reinvest as that would take you over the limit)

This is income derived from your investment and therefore not a contribution against your allowance. Re-investment within a self select ISA is treated as just a normal investment purchase (should you choose to do that), and this will depend on the size of the divi's you receive.

Going back to your original point about whether they are worth it or not. This really depends on how much you have invested or to invest, and whether you think you are likely to make (approx) £8500 profit each year. If you are married you can always transfer holdings into your spouses name to utilise their CGT allowance. I have only recently started moving my investments from a normal account(s) into an ISA wrapped account.

cloud_dog

cheerfulcat

Hi, pazazz,

I can't add much to cloud_dog's answer except to say that when you are offered a tax sheltering opportunity, grab it. You may not be putting much into an ISA immediately ( if a £25 fee worries you, I suspect that you mightn't be saving enough btw ) but over time it will mount up. Anyone who had made full use of PEPs, TESSAs and now ISAs could easily have amassed a largish six figure sum, tax-free...with that sort of money, the annual CGT allowance suddenly doesn't seem so generous.

Cheerfulcat

zag2me

And you have to remember the stock market is on a nice run at the moment, going up far quicker than any normal savings account. No garantee this will continue however

pazzazz

Thanks for the replies.

I was looking to probably invest the full mini isa amount in shares and was thus struggling to see the benefit given the cgt allowance although given (hopefully) future years contributions I guess the 'pot' should build up to be significant vs cgt. (although the rules will prob have changed before I get anywhere nr 'significan')

Sorry I'm still not clear on divi reinvestment: theoretically if i have £4000 in tax yr 06/07 and want all divis reinvested - is that allowed within the isa or are the divi-purchased shares held outside the isa ?

thanks again

cheerfulcat

Yes, any income produced within the ISA may be re-invested; this is on top of your annual contribution allowance.

EdInvestor

Note also that dividends are NOT taxed either inside or outside the ISA for basic rate taxpayers.

cheerfulcat

EdInvestor wrote:

Note also that dividends are NOT taxed either inside or outside the ISA for basic rate taxpayers.

Yes they are. Both inside and outside of an ISA. Tax on UK dividends. It's just that a BR payer has no more to pay.

EdInvestor

Here's the explanation of what's going on here:

http://boards.fool.co.uk/Message.asp?mid=7906059

Warning: this subject makes your head ache.:D

cellardoor

Just wanted to add that, it might not always be your choice to sell a share, if there is a buy out or something. You wouldn't want to get clobbered for CGT.

Also I think with Squaregain, you can hold an isa for each year but they only charge one lot of £25 anually. Somebody else might want to clarify that?