FEATURE: A guide to self-select ISAs
With ISA season upon us, how can you take advantage of this tax-efficient savings vehicle? Barney McCarthy takes a closer look at self-select ISAs
Your plans for the remainder of this month may be centred around your Easter holidays, but this time of year is also the perfect time to sort out your finances. If you are looking to make more of your savings, then you may well be considering an Individual Savings Account (ISA). With the tax year ending on April 5, you only have a month left to make the most of the 2007/8 allowances.
In addition, as of April 6, Her Majesty’s Revenue & Customs is set to implement a number of changes that will transform ISAs. The annual cash allowance will be raised to £7,200, up to £3,600 of which can be saved in cash with one provider. The remainder of the £7,200 (or the entire amount) can be invested in stocks and shares.
The main attraction of ISAs is their favourable tax status. They enable you to place savings or investments in a tax-efficient wrapper where the funds can grow and are exempt from Capital Gains Tax and Inheritance Tax. As well as placing cash into the accounts, stocks and shares ISAs allow you to choose from a wide range of investments including UK and international equities, gilts, bonds, investment trusts, unit trusts and exchange traded funds.
Although investors lacking in confidence may wish to rely on a broker to choose and manage investments on their behalf, you can also pick your own through what is known as a self-select ISA. These enable you to rely on your own judgement to back what companies or sectors you expect to thrive going forward.
James Daly, investor’s representative at online brokerage TD Waterhouse, says: “Choosing a self-select ISA will generally save you an annual 1.5% fee that a managed account carries. Over the long term, stocks and shares ISAs tend to do better than cash ISAs.” TD Waterhouse offers execution-only facilities, which means it doesn’t give advice but simply allows investors to choose their own portfolio holdings. Daly says that while ISAs can be suitable for some people, certain tax advantages such as the Capital Gains Tax exemption only kick in above £9,200, so unless you have a sizeable amount in your account, you won’t feel the benefit. You will still benefit from Income Tax shelter though – so don’t feel that ISAs aren’t a good idea just because you don’t have a sizeable amount of money to invest.
Do your homework
If you are confident that you can be shrewd in spotting good investments, then a self-select ISA may be right up your street. Daly adds: “Self-select investors can get ideas about companies or sectors to invest in from what they read in the papers and see on television and they may receive tips from other investors. You can also carry out research on our site when you are choosing your investments.”
If you have any doubts about whether or not an ISA is right for you or are scared of going it alone, then by all means enlist the help of a financial adviser. But with a powerful research tool like the internet at your fingertips and various other sources of information available, don’t be afraid to go solo.