Why Buy Shares Through a Stocks and Shares ISA?


So you’ve decided you want to buy shares and trade the stock market? You may feel that the first thing you need to do is to open up a share dealing account with an online broker. This is one way to go about it.

For most people, though, there is a much better and more tax efficient way of investing and buying shares. This is to open a Stocks and Shares ISA and invest via that instead.

Things You Need to Know

Before you go rushing off to open a Stocks and Shares ISA there are some important things you should know.

The first is that only selected Stocks and Shares ISA providers will allow you to pick your own shares. This means you will need to open an Investment ISA with a company who offer a Self-Select ISA.

Now that you know what kind of Stocks and Shares ISA to open, let’s consider some of the tax advantages of investing via a Stocks and Shares ISA.

Tax Advantages of Stocks and Shares ISAs

Stocks and Shares ISAs are often referred to as being a ‘tax wrapper’ for your investments. This is because any investments you make through an ISA up to your annual limit – £20,000 in the current tax year – are free from income and capital gains tax.

While you might not think that you will be investing enough at first for these benefits to make a difference, you never really know what the future might hold.

This may be especially true when you are picking your own shares. What if you stumble across another Apple, for example? If you invest through a Stocks and Shares ISA then at least you’ll know that you will not have to pay any capital gains tax on any of your share price gains. You also won’t have to pay tax on your bond interest and dividend income.

A Few Things to Remember

Hopefully you can now see that there are several tax advantages to investing via a stocks and shares ISA. There are a few things that we should mention before you go off and invest, though.

The first is that you will only be able to contribute to one Stocks and Shares ISA in a given tax year. So, be sure to choose wisely!

It’s also worth remembering that you can hold different types of ISA at the same time. So, you could choose to spread your annual allowance across several these. This may allow you to have some cash more freely available for unexpected life events.

Finally, if you already have some shares in your portfolio then it is also possible to transfer these into a Stocks and Shares ISA. This process is known as a Bed & ISA.

Important: The value of investments can rise as well as fall. This means you could lose some of your initial capital if you choose to invest it.

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