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Stocks and shares ISAs: an alternative for savers

 

Stocks and shares ISAs: an alternative for savers

It’s not news that cash ISAs deliver a poor rate of return. Providers have offered low rates for a number of years, and in March 2016 the Bank of England warned that rates on cash ISAs, easy access accounts and fixed rate bonds had reached record lows. CPI inflation has been the one consolation for cash savers, which has remained below 1% for the better part of a year. Savers are now having to look beyond cash ISAs if they want to increase the performance of their money.

Using ISAs for investment

Opening a stocks and shares ISA is a possible solution if you want to generate a higher rate of return on your savings. Stocks and shares ISAs allow you to put your savings into a variety of investments including individual shares, unit trusts, open-ended investment companies (OEICs) and bonds.

Like cash ISAs, you can currently put up to £15,240 a year into a stocks and shares ISA and this will rise to £20,000 in the 2017/18 tax year.

Costs

Stocks and shares ISAs have costs associated with them.

If you’re serious about investments, you need to be willing to stump up the fees charged by the ISA provider and the fund manager. Then there’s the charge for every time you buy and sell a fund and the fee for moving your ISA between providers.

However, make the right decisions and you could see returns far beyond the poor interest rates offered by cash ISAs.

If you’re new to investing, it’s essential that you seek professional financial advice. Speak to one of our advisers today.

Tax on stocks and shares ISAs

Dividend income from shares held in ISAs are tax-free and do not affect your £5,000 annual dividend allowance.

Basic, higher and additional rate taxpayers will not be charged capital gains tax (CGT) on gains made from investments held in a stocks and shares ISA. As the current CGT allowance is £11,100, you will only see the full benefit of stocks and shares ISAs if you make gains in excess of this.

Interest

All interest paid on investments such as government and corporate bonds is tax free. This means a 20% tax saving for basic rate taxpayers, a 40% saving for higher-rate taxpayers and 45% discount for those in the additional rate band.

Get in touch

Investing in the equity and bond markets carry significantly bigger risks than opening your standard cash ISA.

Contact us on 01628 631 056 or email geoffk@knightandcompany.co.uk to get expert help with your savings and investments.