Putting shares into an isa

choppy-c

Greetings all,

i understand that i can put shares I already hold into an isa for this year - is this possible & if so what is easiest cheapest way please ?

any drawbacks ?

MarkBargain

I believe you can up to £15K of shares a year and the advantage would be not to pay tax on your dividends. It may not be worth it though if you want the ISA allowance for cash or other share investments.

choppy-c

I think so thats 20% increase on what was bought for yield - any idea how ?

bowlhead99

Unless you qualify for a special rule (where you got them from an employer's sharesave scheme which matured in recent weeks), you can't literally 'put shares' into an ISA.

But you can sell shares and get cash, then put cash into the ISA (up to the amount of your unused ISA limit for the current tax year), and then once your ISA is funded with the cash it can go and buy shares in the same companies.

So, you first need a broker to sell the shares. Mostly they do not charge a fee to put the shares into an electronic account with them. But you pay a fee to sell. Then you need to ask the broker to create an ISA for you (fill out the forms with your national insurance number and declaration that you haven't gone over your annual ISA contribution allowance this year) and you put your cash into that ISA. Then you go online and while logged into your ISA account, buy shares (paying a broker fee and stamp duty if relevant).

Some brokers will arrange an all-in-one process whereby they create an ISA for you and then do the sell /move cash/ re-buy thing all in one go. Called a 'bed-and-ISA'. It is sometimes cheaper than their normal trading rates, perhaps they only charge you one transaction fee instead of two. However the ones that do it are not always the cheapest ones to maintain your ISA account on an ongoing basis.

x-o.co.uk are a cheap broker who offer ISAs and could do this for you without much ongoing cost.

Not many drawbacks, you are after all protecting your assets from tax. If the broker wants to charge ongoing fees, make sure they are not going to be more than the potential tax you could save over the rest of your life by using the ISA.

Also, there is a transaction cost to do it and as a result of the difference between buy and sell prices and the money eaten by transaction fees, you may end up with slightly fewer shares than you started with.

As you will not hold the shares directly, but only through an electronic account in the name of your broker, you have potentially less direct contact with the company than you would have if your name appeared on their share register. If there are any 'perks' associated with the shares (discounts or annual vouchers for their products or services etc), and your value those, make sure you pick a broker that can pass these on to you. Some of the very cheapest ones don't bother and will charge a fee for corporate actions like stock splits or arranging for you to be able to attend a shareholder meeting.

steelbru

MarkBargain wrote: »

I believe you can up to £15K of shares a year and the advantage would be not to pay tax on your dividends. It may not be worth it though if you want the ISA allowance for cash or other share investments.

Only if you are a higher rate taxpayer, basic rate taxpayers do not have to pay any tax on dividends, as the company giving the dividend has already paid basic tax before you get it.

MarkBargain

steelbru wrote: »

Only if you are a higher rate taxpayer, basic rate taxpayers do not have to pay any tax on dividends, as the company giving the dividend has already paid basic tax before you get it.

Oh right, you learn something new every day! It's been years since I held any shares, all investment funds in an ISA these days.

bowlhead99

The advantage is
1) no tax on any dividends if you ever become a high rate taxpayer,
2) no tax on any capital gains ever,
3) not needing to ever keep any records of how much you paid for the shares or what income you got from the shares to satisfy HMRC enquiries that you don't actually owe any tax in relation to (1) & (2).
4) grabbing a current year allowance rather than losing it; if you run out of annual ISA subscription allowance in future years and decide you don't want to keep the shares any more, you can always sell up and use the proceeds to buy some bonds or shares or make cash deposits without paying any tax on the interest or dividends or gains ever.

So, at least 4 benefits and the cost of doing it is pretty nominal.

MarkBargain wrote: »

Oh right, you learn something new every day! It's been years since I held any shares, all investment funds in an ISA these days.

As an FYI, the treatment of shares and dividend-paying investment funds is the same as each other, whether they are both inside an ISA or outside the ISA. So if CGT is not a worry and you are not a Higher Rate person than you could always hold your investment funds outside an ISA too (though you'd be giving up the 4 advantages above)

choppy-c

Ok - thank you everybody; very interesting if not dead simple.(Is it ever) A great help - I think worth doing long term & this years isa allowance is not used

jimjames

steelbru wrote: »

Only if you are a higher rate taxpayer, basic rate taxpayers do not have to pay any tax on dividends, as the company giving the dividend has already paid basic tax before you get it.

Basic rate taxpayers are still liable to CGT though. And you never know what might happen to your tax situation in future so I'd always use S &S ISA allowance to protect against tax if you can