Self-select ISA?

Wobblydeb

I was reading the Sunday Times Money section and came across the following from William Kay:

"If you keep your own portfolio you will need a self-select ISA, which usually costs too much to be worthwhile for basic-rate tax payers".

I don't understand this. I am planning on starting to self-invest in shares/trusts and thought the best starting point was to use my ISA allowance.

What do you think?

anselld

I think the point is that for the basic tax payer S&S ISA no longer gives tax free income on share dividends, etc. There is a small subset like fixed interst bonds that still get tax reclaim but not much. There is still shelter from CGT but that is not much of an issue for small investors.

So for moderate share holdings as a basic rate tax payer there is little advantage to ISA wrapper, it just costs extra money.

Wobblydeb

Oh, I didn't realise that earned income wasn't tax free. Gosh, what a swizz.....

I don't think it will give me much benefit then, as I cannot imagine making more than the £10k CGT limit. :huh:

noh

It need not cost extra. There are still self select ISA providers with no fee.
I believe it worth while to build your portfolio up within an ISA.
The advantages, in no particular order, are:-
No need to enter income from ISA on tax form.
Tax relief on income from fixed interest securities.
Income doesn't count towards reduction of age related allowance
No CGT

You may start off with moderate amounts but after ten years with contributions of £10200 p.a your portfolio should be worth well over £100000.

anselld

Wobblydeb wrote: »

Oh, I didn't realise that earned income wasn't tax free. Gosh, what a swizz.....

One of Gordons many stealth tax increases. :mad:

Wobblydeb

noh wrote: »

It need not cost extra. There are still self select ISA providers with no fee.
I believe it worth while to build your portfolio up within an ISA.
The advantages, in no particular order, are:-
No need to enter income from ISA on tax form.
Tax relief on income from fixed interest securities.
Income doesn't count towards reduction of age related allowance
No CGT

You may start off with moderate amounts but after ten years with contributions of £10200 p.a your portfolio should be worth well over £100000.

Hmmmmmm I can see where you are coming from - I am not keen on making tax returns, and would far rather keep everything in tax free vehicles as much as possible.

I am quite tempted to use FirstDirect who I have my cash ISA with. An initial scan of the details show - No registration or annual fees, and £15 per trade. I need to have a thorough read of the terms and conditions.

Do you know of any common charges that I need to check for (might be hidden in the small print!).

Thanks all

anselld

The other think to consider is do you really want to self-select individual stocks. I have done this for about 10 year whilst my OH has invested same amounts in managed funds. Needless to say the professional fund managers have done much better than my amateur selections on average.

There are cost effective ways to avoid fees on managed funds. My OH uses Commshare who give both a discount on initial deposits and an annual cashback.

noh

anselld wrote: »

The other think to consider is do you really want to self-select individual stocks. I have done this for about 10 year whilst my OH has invested same amounts in managed funds. Needless to say the professional fund managers have done much better than my amateur selections on average.

There are cost effective ways to avoid fees on managed funds. My OH uses Commshare who give both a discount on initial deposits and an annual cashback.

Another alternative may be Alliance Trust Savings who allow investments in stocks and shares as well as funds also rebating the full amount of initial and trailing comissions.

Wobblydeb

I've just been reading FirstDirect bumf about S&S ISA and it seems that although the initial 20% tax on dividends remains payable, any additional amount (due to being a higher rate tax payer) is free from income tax. That decides it - ISA is better suited for my purposes....

anselld wrote: »

The other think to consider is do you really want to self-select individual stocks. I have done this for about 10 year whilst my OH has invested same amounts in managed funds. Needless to say the professional fund managers have done much better than my amateur selections on average.

I understand the sentiment, and do wonder if I will be able to outperform managed funds - which typically underperform the market! The best advice I have read is to give it a go for 3 years, and make comparisons to the market. If I am underperforming to accept my mediocrity and hand the money over to someone with more experience

To be honest, this is an entertaining experiment with money that would otherwise be going on consumer goods. I will be getting entertainment value out of my money at least

Paul_Herring

Wobblydeb wrote: »

Oh, I didn't realise that earned income wasn't tax free. Gosh, what a swizz.....

I don't think it will give me much benefit then, as I cannot imagine making more than the £10k CGT limit. :huh:

It wouldn't take that many years of full contributions increasing by a reasonable amount to push you over the CGT limit if you were to sell them all at the same time.

Rollinghome

Paul_Herring wrote: »

It wouldn't take that many years of full contributions increasing by a reasonable amount to push you over the CGT limit if you were to sell them all at the same time.

Which wouldn't be a very sensible approach of course.

I manage our joint portfolio worth seven figures and still don't find CGT to be such a major issue quite frankly, provided there's some forethought. Yes, we do use our ISA allowances (as we did with the far more beneficial PEPs before them) but the majority is inevitably outside. With equity values below what they were 10 years ago there must be a few who wonder why they ever worried about CGT. :rolleyes:

Yes, a stock and shares ISA can benefit some, mostly higher rate tax payers, but shouldn't be confused with cash ISAs which benefit almost every tax payer. So always take a look at the benefits and costs and other disadavantages, especially the inflexability as the Sunday Times rightly point out.

Unfortunately S&S ISAs tend to be used as a marketing tool by the finance industry and clearly many people will not benefit in the way they are encouraged to assume. It would certainly be a mistake for most people to move their cash ISAs into a S&S ISA which are not allowed to be moved back again. (Probably because S&S ISAs cost the Treasury far less in tax benefits than cash ISAs.)