SHARE ISA GUIDE |
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A Share ISA enables
you to invest your money into the stock market, rather than just saving it. So
you can either take out a Mini Share ISA or you can incorporate your investments
within a Maxi ISA alongside your Cash component, if you have one.
You can put your
money into any fund run from the UK or any company listed on a recognised stock
exchange. The latter means most major markets, with the exception of AIM, the
Alternative Investment Market for small companies that is run by the London Stock
Exchange.
Shares ISAs
and Tax
The income tax
benefits from share ISAs are less pronounced than for cash ISAs. Outside of an
ISA you don't pay any tax on dividends if you are a standard-rate taxpayer. But
you do have to pay some tax if you are a higher-rate taxpayer. Within an ISA the
government will allow you to reclaim a 10% tax credit on your dividends. Your
ISA manager will do this automatically. However, this only applies until 2004
when the reclaimable tax credit will disappear so, at that stage, you will lose
this benefit. After this time, if you are a standard-rate taxpayer the treatment
of dividends inside and outside of an ISA will be same.
The main tax benefit
that share ISAs offer is protection from Capital Gains Tax (CGT). If you making
a small one-off investment in an ISA then it is unlikely that you will have to
pay much in the way of CGT. However, if you intend to use your full allowance
year after year then you may have a substantial bill to pay years down the line,
especially if you wish to cash in over a short timeframe. Shares ISAs protect
your funds from CGT. In the case of funds there are often no additional amounts
to pay by sheltering your investments within an ISA. If you are investing in individual
shares you may some additional charges to pay but these are often capped if you
bundle together several years' worth of ISAs.
There is one tax
you can't escape however. This is stamp duty which is payable on all share or
fund purchases. It is charged at 0.5%. There is no stamp duty to pay when you
sell.
DIY
or Hands-Off?
Financial institutions
offer different types of shares ISAs so you need to decide whether you want to
be a hands-on investor or not before you open a share ISA. For example, some will
let you buy a simple index-tracking ISA that follows the fortunes of a particular
index. These are often the cheapest and easiest types of ISA to invest in. See
our Tracker Centre for more details.
Alternatively,
you can leave everything up to the particular ISA fund manager you've chosen and
hope he or she does better than you could. In this instance, you'll be charged
a fair bit more for their services and you're taking more of a risk with your
investments.
You can even choose
your own individual shares if you opt for a Self-Select ISA. Inside a self-select
ISA you can buy and sell as often as you want as long as your actual contributions
from outside the ISA do not exceed the annual allowance. Once your shares are
inside the ISA you can chop and change your portfolio as often as you like with
no tax penalties as long as the shares, or cash from the sale of the shares, never
actually leave the ISA. Some Self-Select ISA managers will even allow you to hold
individual shares and unit or investment trusts -- side by side -- in your ISA.
The point is that, in this instance, you will be making the decisions yourself.
ISA
guide
How much can I invest in an ISA
Mini and Maxi ISA guide
CAT standard ISA guide
Cash ISA guide
Share ISA guide
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