Why Buy Shares Through a Stocks and Shares ISA?


When people first decide that they want to buy some shares and trade the stock market, many will instantly feel that the first thing they need to do is to open up a regular share dealing account with an online broker. While opening up an online dealing account will allow you start trading, for most people there is a much better and more tax efficient way of investing and buying shares, and this is to open a Stocks and Shares ISA online* instead.

Before you go rushing off to open a Stocks and Shares ISA, though, it’s important to know that only selected ISA providers will actually allow you to pick your own shares when investing through a Stocks and Shares ISA, so you will need to make sure you take out your ISA with a company like Hargreaves Lansdown* who offer what is known as a Self-Select ISA.

So, now that you know what kind of Stocks and Shares ISA to open in order to trade the stock market by picking your own shares, let’s now consider some of the tax advantages of investing via a Stocks and Shares ISA, rather than through a standard dealing account.

Tax Advantages of Buying Shares Through a Stocks and Shares ISA

Stocks and Shares ISAs are often referred to as being a sort of ‘tax wrapper’ for your investments. This is because any investments you make through an ISA up to your annual limit – £15,240 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 given the current capital gains tax and dividend income allowances, you never really know what the future might hold and just how well some of your investments might perform. This may be especially true when you are picking your own shares instead of investing in funds or allowing an ISA manager to balance your investments for you. What if you stumble across another Apple, for example? If you invest through a Stocks and Shares ISA now rather than investing through a standard UK share dealing account, 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 either.

A Few Things to Remember

Hopefully you can now see that there are several tax advantages to investing via a stocks and shares ISA rather than through a standard online dealing account. There are a few other 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 a both a Cash ISA and a Stocks and Shares ISA at the same time, so you could spread your annual allowance across both of these if you would prefer to have some of your cash more freely available. Finally, if you already have some shares in your portfolio then it is also possible to transfer these into a Stocks and Shares Isa if you set one up using a process called a Bed & ISA*.

Please also remember that the value of investments can rise as well as fall, meaning you could lose some of your initial capital if you choose to invest it.

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