1. You can invest up to £11,520 in a Stocks and Shares ISA
The yearly tax free allowance on stocks and shares ISAs is double the amount you can invest in a Cash ISA in the same period. So every UK citizen or Crown Dependency 18 years or over can invest up to £11,520 in a Stocks and Shares ISA up until April 2014, after which point they will be able to invest a further £11,520. Of course there is the option to split your allowance between a Cash ISA and a Stocks and Shares ISA right down the middle, so that’s £5,760 in each. You can split your £11,520 total ISA allowance in any way you want but you can never put more than £5,760 into a Cash ISA.
2. You still get charged 10% tax on dividend payments
Dividends on dividend payments from shares are still taxed at the 10% basic rate which you’ll pay regardless of the tax free wrapper the ISA gives you. This is known as a tax credit and is deducted at source. The tax savings on dividends from a Stocks and Shares ISA will only kick in when this jumps to 32.5% for higher rate tax payers or 37.5% for additional tax rate payers, so unless you are in one of these income tax brackets then the tax free element of the ISA won’t even come into effect.
3. You don’t pay capital gains tax on profits below £10,900
When you come to sell your shares at a profit you will pay capital gains tax on any profits you make above £10,900 in anyone tax year. Unless you are seeing profits above this amount the tax free element of your Stocks and Shares ISA will not come into play.
4. You can transfer your previous year’s Cash ISA allowance
You can transfer your ISA savings from a previous year’s Cash ISA allowance into your current year’s Stocks and Shares ISA allowance as well as the current year’s allowance, although in the latter case you will be required to transfer the whole amount. Like Cash ISAs, Stocks and Shares ISAs can be transferred to a new provider.
5. You can spread the risk with Investment Trusts and Unit Trusts
Stocks and Shares ISAs allow you to spread your money across various asset classes and investment vehicles, including government bonds, corporate bonds, unit trusts, open-ended investment companies and investment trusts. The last three of these all allow you to pool your money with other investors and invest in a range of assets, allowing you to spread your risk and cushion against any losses. This is far less risky than buying into individual shares which can rise and fall without warning and take away the pressure of having to make your own investment decisions. Investment trusts tend to have more complex structures than unit trusts and open-ended investment companies.
6. You can invest in shares directly
You could opt to invest directly by buying shares in a company directly but this is high risk and the value of your investment could fluctuate or even be wiped out entirely. Shares in Alternative Investment Market companies are now covered by the tax free ISA wrapper but despite some overnight success stories these are considered to be high risk and, unless you are an experienced investor, best avoided.
Joe Cox writes on behalf of UK Savings Account provider, GE Capital Direct. He has written numerous articles on banking, finance and politics.