In a nutshell:
A Stocks and Shares ISA is the best way to invest and grow money tax-free through the years. You first need to select a platform, and then select the products to go into the S&S ISA.
- All UK residents over 18 get a ISA allowance
- Money invested in a S&S ISA grows tax-free.
- Best percentage based platform is Vanguard.
- Best fee based platform is Halifax/iWeb
- What is a S&S ISA?
- What platform should you use?
- What product should you choose?
First, what is a Stocks & Shares ISA?
An Individual Savings Account, or ISA, is a ‘tax-free wrapper’ allowing an individual to invest up to £20,000 before the end of the tax year.
‘Tax-free’ meaning no taxes (Capital Gains Tax, Dividend Tax and tax on bonds, to be specific) are paid on any gain on this money.
For example: During the year you invested your full allowance, £20,000. You achieved a 50% rate of return (Is that you, Warren Buffett?), now your money is worth £30,000 – and you will pay ZERO tax on this £10,000 gain as it is in an ISA.
This £30,000 will then be rolled forward, and assuming the S&S ISA allowance is £20,000 again next year, you can invest this on top of the £30,000, and generate further returns from this the following year.
Second, choosing a platform?
You have to select a platform, or provider, who will hold your Stocks & Shares ISA.
Percentage fee brokers are better for individuals with <£25k. The best percentage based platform is Vanguard, offering a 0.15% platform fee. However, on Vanguard you can only invest in Vanguard products. Another good percentage based platform is Cavendish Online, offering a 0.25% platform fee.
Flat fee brokers are better for individuals with larger holdings, >£25k.
The best flat fee platform for regular investing is Halifax, offering a £12.50 annual charge, and £2 for regularly investments, totaling £36.50 in total (assuming you invest once a month).
The best flat fee platform for lump-sum investing is iWeb, offering a one-off account opening charge of £25, and then £5 per trade, totaling £35 in total (assuming you lump-sum invest twice a year).
[Choosing a platform may require some self research, as the optimal platform for you will depend on various factors. Including; your trading frequency, what products you want to invest in (below), whether you’re looking for other services (e.g. – Share Dealing) and so on. Click here for a comprehensive list of platform comparisons.]
Third choosing a product?
You now have to choose a product to go into your S&S ISA. Obviously here you will need to research what index fund, ETF, or shares, you will want in your ISA.
To keep it simple you can invest in Vanguard’s FTSE Global All Cap Index Fund – Accumulation, every month.
This is an index fund that tracks the global index, with a fee of 0.24%. Essentially, this fund will move in line with the global economy, which based on history we would expect will increase over the next several decades.
This is where all your personal research into different funds, ETF, and stocks can be deployed, and you can put your favourite products into your ISA!
[It is important to note, before choosing your platform, ensure the product is available on that platform. One downside of Vanguard is, currently, you can only invest in Vanguard products. Hence if you want to buy a iShares ETF or a FTSE 100 stock you will need to use another platform.]
That’s the essentials of a Stocks and Shares ISA.