SELF-SELECT ISAs - WHAT'S THE POINT ?

King_Weasel

I used to have a self-select ISA. But then I realised I couldn't see the tax advantage - not unless I busted the Capital Gains Tax threshold, anyway - and my broker was charging me extra just because it was an ISA. The shares choice was a bit more limited, too.

So I closed it and just had an ordinary share account instead. The only snag I could see was that I have to put details on my tax return, but I'm living with that.

Did I do the wrong thing? Can anyone explain to me why I should bother to wrap my shares in an ISA?

Of course I'm only talking self-select here - unit trusts are a different story.

dunstonh

Why?

No capital gains tax (and no need to monitor when to buy/sell to use CGT allowance and incur costs at that time). No higher rate of Income tax. No reduction in age allowance.

A small holding may not be worthwhile but if you are an active investor, the benefits are great.

King_Weasel

Thanks for that, dunstonh. It's good to have something from a qualified source.

As my share portfolio is only worth about £15K and I don't plan to invest much more, CGT is never going to be an issue for me. Neither am I a higher rate taxpayer. But what's this about age allowance?

I have two brokers at the moment. One only charges for transactions (and I don't trade often), the other has a low quarterly charge. Both charge more for ISA accounts, I believe.

So I reckon I fall into your small holding category and from what you've said I'm doing the right thing for me.

On the whole I'd rather trust experts than my own judgement. That's why most of my investments are in funds, and all but one of these are in ISAs (using a fund supermarket).

Thanks again.

david78

If you achieve gains of 10% each year on your £15,000, you will break through the capital gains threshold in 5 or 6 years?

RayWolfe

King_Weasel wrote: »

But what's this about age allowance?

If you are 65+ you will get an increased Personal Tax Allowance to around 7K. However, if you earn more than around 21K this age allowance gets reduced. Look on the HMRC web site for precise details.

King_Weasel

You've got a point there, david78! I would just add that your figures assume no increase in the CGT allowance in the next 5-6 years. If CGT rises with inflation and my shares rise at 5% pa ahead of inflation (optiistic?) then your 5-6 years become 9-10 years. Even then, I would need to sell the lot in one year (though dunstonh's point about timing comes into play).

So I'm still not convinced, but I should have recognised the possible compounding effect along with dunstonh's points. A younger person than I, as well as one with a bigger portfolio, might well need to go the ISA route.

RayWolfe, thanks for that on Age Allowance. I need to clarify how it will affect shares either in or out of an ISA when the time comes - my dividend tax credits are pretty modest!

Xbigman

You also don't know what a future chancellor may do. Tax on dividends, less CGT allowance, reinstate the ability to claim back the tax credit, anything.

Having the money in a tax shelter can only help or be neutral, and as the cheapest provider is only £25 a year I think its worth every penny.
Regards



X

debbie42

Xbigman wrote: »

Having the money in a tax shelter can only help or be neutral, and as the cheapest provider is only £25 a year I think its worth every penny.

That's my thoughts exactly. £25 is exactly how much I pay each year for the privilege of having my SSI, even though I'm not currently above the tax allowance thresholds.