Stocks And Shares ISA vs Normal Fund Investment

dunstonh

there is usually no extra charge for investing via an ISA.

Actually, for funds it can be cheaper. Some fund houses give greater discounts on their ISAs than they do on unit trusts unwrapped.

Yes, for a basic rate taxpayer with capital gains under £9,200 a year there is no immediate advantage of investing in an ISA versus directly into a share or unit trust.

Not quite correct.

1 - basic rate taxpayer over age 65. income generated in ISAs does not go towards income for £20,900 age allowance limit purposes and therefore can avoid age allowance removal. (those making annual contributions for retirement have that as a future benefit as well).
2 - Basic rate taxpayers with Fixed interest funds can claim the tax back in an ISA but not unit trust. So low risk investors or those with an element of fixed interest (which should be all upto medium or even medium/high risk) will benefit
3 - basic rate taxpayers who may become higher rate in future
4 - basic rate taxpayers who are close to higher rate and the income on unit trusts could push them into higher rate.

If the ISA allowance is available it is the first thing to use. There is no reason not to.

Scrapper

cloud_dog wrote: »

Well, I'm not aware of any S&S ISA that doesnt have an annual charge for the account/wrapper, so thats a disadvantage and it is S&S ISA we are talking about, not fund based ones.
cloud_dog

I've heard that NatWwest Stockbrokers in Leeds (actaully TD Waterhouse) offer a self select Stocks and Shares ISA which has no annual charge if you have more than a certain amount invested. This competes with the NatWest ISA office in London who do make an annual charge.

Scrapper

dunstonh wrote: »

basic rate taxpayer over age 65. income generated in ISAs does not go towards income for £20,900 age allowance limit purposes and therefore can avoid age allowance removal. (those making annual contributions for retirement have that as a future benefit as well).

If the ISA allowance is available it is the first thing to use. There is no reason not to.

Interesting, I didn't know about the age allowance thing but that is another very good reason for long term investors to go for ISAs.

As you say, by and large you if you are going to invest, particularly in things like unit trusts, OICs or investment trust regular savings plans, you need a good reason for not investing via an ISA.

dunstonh

you need a good reason for not investing via an ISA.

Probably the only reasons are ineligibility and if you need it to be in trust or designated to a child.

jamesd

The TD Waterhouse S&S ISA has no annual fee for the ISA wrapper for shares provided 3,600 or more is in the account. Dealing costs and stamp duty mean that it is most likely to be interesting for higher rate tax payers with significant dividend payments, where 7200 a year at 4% yield could produce a 65 or so saving in tax before costs (assuming 22.5% higher rate tax difference) or bond income. But stamp duty on purchasing 7200 of investments is 36 so transferring them in would be the way to go if they weren't already inside the wrapper; no charge to transfer in.

jem16

Scrapper wrote: »

Yes, for a basic rate taxpayer with capital gains under £9,200 a year there is no immediate advantage of investing in an ISA versus directly into a share or unit trust. BUT...

Think of the long term: will you always be a basic rate taxpayer?

If you invest the maximum of £7,200 a year in an ISA every year for 10 years that's £72,000 plus investment gains - let's say £100,000 if you are really lucky. Sell all at once and you will pay 18% Capital Gains Tax on the £28K gain less £9.2K - so 18% on approx £19K. And if in 10 year's time you have become a higher rate taxpayer you'll be paying higher rate tax on the dividends if your investment is outside an ISA.

For the sake of clarification as it's already confused another poster on another thread.

I'm assuming you were meaning that after ten years an investment outside an ISA would be liable for CGT if sold all at once and an investment inside an ISA would not be liable to CGT?

Scrapper

jem16 wrote: »

For the sake of clarification as it's already confused another poster on another thread.

I'm assuming you were meaning that after ten years an investment outside an ISA would be liable for CGT if sold all at once and an investment inside an ISA would not be liable to CGT?

Yes indeed. I meant to say exactly that: an investment OUTSIDE an ISA would be subject to CGT. And indeed one of the great advantages of an ISA is that however much capital gain you make there is no CGT to pay on gains made within ISAs.

tradetime

Hi, I'm also trying to work out just how usefull the stock ISA could be, I have been living abroad and only recently moved back here still trying to get my head around ISA's. The cash variety seem straightforward enough, but the stock one confuses me a little.
Is there a restriction to how much trading can be done through an ISA, ie how many times shares can be bought and sold, how long or what % of the account can be in cash at any given time? Is everything within it considered tax free, ie all profits. Just trying to workout whether I could make much use of this or just stay with cash ISA.

Aegis

tradetime wrote: »

Hi, I'm also trying to work out just how usefull the stock ISA could be, I have been living abroad and only recently moved back here still trying to get my head around ISA's. The cash variety seem straightforward enough, but the stock one confuses me a little.
Is there a restriction to how much trading can be done through an ISA, ie how many times shares can be bought and sold

No

how long or what % of the account can be in cash at any given time?

No, but cash holdings do NOT get the income tax exemption on interest payments if they are held inside the stocks and shares portion of your ISA. Oh, and the rates tend to be quite poor.

Is everything within it considered tax free, ie all profits.

There is no further tax liability on gains made within an ISA. You still pay the 10% automatically withheld tax on income from dividends within an ISA, but aside from that I believe that they generate no other tax while the ISA endures.

dunstonh

in addition to above, funds that pay interest can claim the whole amount of the tax back. That would be fixed interest funds typically. There is talk of property funds being allowed to do it as well in future but nothing concrete yet.

ISAs also do not go towards income tax so if you are close to basic rate or higher rate or the age allowance reduction amount then ISAs are ideal. You also have no CGT and no chargeable event on switching or buy/sells within the ISA.