Shares ISA - Would I be wasting my money?

frothy-coffee_2

Hi,
I've not invested in a shares ISA this tax year.

I was thinking off opening a Shares ISA account with Selftrade before the deadline and depositing £5100 in it.

I haven't yet decided which shares (or more likely a fund/tracker) I wish to buy with the money and was going to leave the cash on deposit with them (they don't pay interest) until I deciding in a month or two what to buy.

They charge a £35 up front annual management charge and £12.50 per trade.

I'm a basic rate tax payer and would like to know your opinion on whether the tax savings would make it worthwhile?

NB: I already have a cash ISA and this will be my first Shares ISA

Lokolo

Why use Selftrade and not someone cheaper like X-O (UK trades only) or iii?

frothy-coffee_2

Lokolo wrote: »

Why use Selftrade and not someone cheaper like X-O (UK trades only) or iii?

Because I'd only heard of Seltrade

Lokolo

Ah, well now you know 2 more

frothy-coffee_2

Lokolo wrote: »

Ah, well now you know 2 more

Doesn't really answer my question though?;)

Lokolo

Well your answer isn't answerable. There's no way to know any tax advantage because we don't know how much profit you are going to make.

Having shares in an ISA protects you from higher rate dividend yield (which won't effect you being a 20% tax payer) and Capital Gains tax.

Capital Gains tax is payable on profits over £10,100 (which will go up to some other amount in a week). So I don't know if you will benefit from it because I don't know if you're going to make any profit or not

frothy-coffee_2

How about if I pluck some figures out the air.....

A 10% annual growth on a fund?

Does that make sense?

Lokolo

It's when you sell. So if you have shares at £5,000. You keep them for 10 years and they are now worth £30,000, you sell them you've made £25k profit and if this is over the Capital Gains allowance then you will pay 18% tax.

If the ISA costs nothing, you may as well have it. If it costs to have the ISA then for smaller amounts it's unlikely to be cost effective, but for larger amounts (whereby the return is greater) then it could be.

frothy-coffee_2

I see....

The CGT relief doesn't compound over the 10 years. You just get one lot of tax relief on year you withdraw all or part of it?

Lokolo

Yeppo!

............

jimjames

frothy-coffee wrote: »

I see....

The CGT relief doesn't compound over the 10 years. You just get one lot of tax relief on year you withdraw all or part of it?

Yes but you can withdraw up to the limit each year to make the most of it. So if you have £50,000 of gains you can spread sales over 5 years to use 5 allowances.

But if you don't already have an ISA it is a no brainer to buy shares/funds inside one as the cost is the same as having them outside and the funds are then protected indefinitely from tax.

Hargreaves Lansdown and iii do not charge annual management fees for most funds.