Experienced investors who want greater control over their investment choices may want to consider using a self-select ISA.
These allow you to pick and buy shares and investments yourself to hold in a tax-free ISA wrapper. Here, we explain how self-select ISAs work and look at some of their advantages, as well as the potential risks.
What are self-select ISAs?
A self-select ISA is a type of stocks and shares ISA (as opposed to a cash ISA). As the name suggests, a self-select ISA enables you to choose what assets you want to hold in your ISA, rather than a fund manager making the decisions.
They are usually offered by stockbrokers and the wealth management arms of high street banks, and, because investments are held within an ISA, returns are free of income tax and capital gains tax. The maximum you can hold in a self-select ISA this tax year, or any stocks and shares ISA, is £11,520. Alternatively, you can split your allowance and invest £5,760 in a stocks and shares ISA and the remaining £5,760 in a cash ISA
What types of self-select ISAs are available?
As well as individual shares, there is a wide range of other assets that can be held within a self-select ISA, including unit trusts, investment trusts, open-ended investment companies, bonds, gilts and exchange traded funds.
Remember that the value of these investments can fall as well as rise so there is more risk attached with investing in a stocks and shares ISA than there is with a cash ISA.
When choosing a self-select ISA, you’ll also need to decide whether you want to go for an execution-only broker, or a broker which offers advice.
Execution-only brokers have the lowest fees as they simply provide the internet trading platform you’ll need to trade shares and other investment. Broker firms that offer advice charge more because they will help you decide which shares to pick.
What are the advantages of a self-select ISA?
Picking the investments you want to hold within your ISA gives you much greater control in comparison to handing the reins over to a fund manager. However, bear in mind that you will need to actively monitor your investments and keep an eye on how they are performing – if you don’t have the time to do this, a self-select ISA may not be the right choice for you.
The other major advantage of a self-select ISA is the tax benefits. Investment growth and dividends received within the ISA are free of capital gains and additional income tax, which is particularly advantageous for higher rate taxpayers.
You can change your investments within your ISA if you want to, but remember you cannot move your money into a cash ISA.
How can MoneySupermarket help?
It can be tricky working out where to go for your self-select ISA, but MoneySupermarket.com enables you to compare what’s on offer to help you decide which provider is right for you.
You can see at a glance what all the major players provide, including trading costs and the number of funds available for you to choose from, plus which allow you to buy individual shares and other investments as well as funds.