Share dealing ISA question

nickohorny

Hi everyone

I am new to investing and share dealing. I want to start investing for my future so have been doing some research. I have opened up my first cash ISA, and about to put some money into a stocks & shares ISA.

I have read that each person has a capital gains tax allowance of £10,900 this year, and that an ISA share dealing account is not worth opening if you expect to earn profits under this as it will make no difference to your free tax allowance.

I am confused and my question is - why doesn't everyone still open an ISA share dealing account compared to a regular one if all profits free from tax? just incase you make profits over your allowance?

I am also confused on withdrawals - what if you transfer out profits within same year? this profit is not taxed right?

Sorry for the noob questions, just trying to get my head around why I should open an ISA share dealing acc compared to a normal one. i am expecting to invest around 5,000.

Thank you for all your help.

k12479

nickohorny wrote: »

why doesn't everyone still open an ISA share dealing account compared to a regular one if all profits free from tax? just incase you make profits over your allowance?

Your question isn't very clear but aside from capital gains, dividends is a reason. Basic rate taxpayers don't have to pay any further tax on dividends whether the shares are in an ISA or not (i.e. there is no tax advantage). Higher rate taxpayers however, would have to pay additional tax on the dividends if the shares were outside an ISA, but if they are inside an ISA, no further tax is due. Essentially, the tax listed here is avoided - https://www.gov.uk/tax-on-dividends. So there is a tax advantage if you are, or will be in the future, a higher rate taxpayer.

nickohorny wrote: »

what if you transfer out profits within same year? this profit is not taxed right?

No, no tax to pay, but ideally, if you leave profits in the ISA and reinvest them along with each years allowance, you can build up a substantial amount, e.g. http://www.dailymail.co.uk/money/diyinvesting/article-2541786/JEFF-PRESTRIDGE-Good-lord-You-Isa-millionaire.html

pip895

When considering long term savings it is worth remembering that your situation may change - in the future it may matter a lot that the income and capital you take out of your isa is tax free. You could be paying higher rate tax, or filling out a tax return. The fact you don't need to report on transactions in the isa wrap is a big advantage - even if it isn't at a level where there is CGT to pay.

westy22

nickohorny wrote: »

Hi everyone

I am confused and my question is - why doesn't everyone still open an ISA share dealing account compared to a regular one if all profits free from tax? just incase you make profits over your allowance?

IMHO they should - having your S&S within an ISA has potential benefits for all, whether HR tax-payer or not. There are, however, some platforms which charge extra for having an ISA wrapper so where applicable you need to weight that cost against the potential benefits.

nickohorny

Thanks for the replies, sorry if I sounded confusing! I suppose I am trying to figure out why would I - as a first time investor - open a regular share dealing account as opposed to an ISA share dealing account.

I have done some research into brokers, if I use a broker such as iwebb I can trade at 5 pound per trade and it is free to open and use an ISA with them, no inactivity fee either.

So I was just curious why I would not do this.

I do not earn that much, am not investing a huge amount (around 5,000), and doubt very much I will make over my allowance in profits during my first year! so not sure the ISA acc was the way to go.

:mad:

ChesterDog

On the flip side, an ISA is often subject to higher account charges than an ordinary trading account.

grey_gym_sock

though in the case of iweb, an ISA is cheaper than a sharedealing account, because the ISA has no charges for corporate actions or "tradeplan" (limit orders). this is a bit unusual, i think.

Linton

If you arent likely to have to pay tax the main advantage of share dealing within an ISA is that outside an ISA you have to keep detailed records of your transactions for up to 7 years as HMRC can (though probably wont) ask you for them.

kidmugsy

Remember, OP, that Capital Gains Tax applies only when you realise a gain e.g. sell shares at a profit. There's no tax on the shares simply increasing in value.

EdGasket

Post 2 reply is partially incorrect. If the dividend is a Property Income Distribution (PID) such as is the case with British Land dividends then you lose 20% of it outside an ISA. A very good reason for being in the ISA, even for a basic rate taxpayer.

jimjames

I'd also recommend that as a declared newbie that you look carefully at whether funds would suit your situation better than buying shares. Trading shares to make short term profits is one way almost guaranteed to make you poorer. Generally the people who have accumulated the most wealth investing have done so buying and holding long term.