COMPARE SELF-SELECT ISAS

Self-select ISAs

What is a Self Select ISA?

A self-select ISA is a type of Stocks and Shares ISA.  The ISA is effectively a tax wrapper like a pension, so you can choose the underlying investments your money is invested in. Various non-cash assets can be held in a stocks and shares ISA, including unit trusts, investment trusts, open ended investment companies, bonds, individual shares and exchange traded funds.
 
A self-select ISA allows you to pick and buy the shares yourself. They are designed for more sophisticated investors who are happy to take on greater risk. These ISAs tend to be offered by stockbrokers and the wealth management divisions of high street and private banks. Decisions of what to buy and sell are entirely down to you however so self-select ISAs tend only to be popular with active investors who keep a close eye on share prices.

How much can you put in?

Your annual ISA allowance in the 2012-2013 tax year is £11,280. You can put the entire amount in a stocks and shares ISA.

Alternatively, you can split it and put up to 50% - £5,640 – in a cash ISA. Remember though, the total you can invest this year is £11,280 so if you put more than £5,640 in a stocks and shares ISA it will reduce the maximum you can put in cash. For example, if you invest £7,000 in stocks and shares, you’ll only be able to put £4,280 in a cash ISA.

What are the advantages?

Any money held within an ISA is free of income and capital gains tax (CGT) subject to future changes & your individual circumstances. So a stocks and shares ISA can generate significant tax benefits once you have built up a substantial holding of investments.

Over the long term equities tend to outperform cash and bonds, so the fact a stocks and shares ISA enables you to invest in the stock market in a tax efficient way gives you the opportunity to maximise potential returns on your money. However, the performance of shares and bonds varies significantly so a lot will depend on where your money is invested.

There are no restrictions on changing your investments within a stocks and shares ISA. Remember though that once you have invested your money in a stocks and shares ISA you cannot move it to a cash ISA.

What are the disadvantages?

The value of your investment 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.

ISA rules allow savers to move money held in a cash ISA into a stocks and shares ISA without restriction, but this does not work in reverse: you can’t move money from a stocks and shares ISA into a cash ISA without losing your tax advantages.

Who do they suit?

Provided you are happy to take the risk of investing in funds, shares or bonds, a stocks and shares ISA can offer substantial tax benefits in the long term. However, because of the associated risk you should only invest once you are comfortable you understand and accept the risks.

ISAs can be a good way of saving for retirement and other long-term goals such as university fees. If you use your ISA allowance every year you can build up a significant investment portfolio. The aim is to diversify and invest in different types of funds so you have exposure to other stock markets, as well as the UK’s, and even different asset classes – as well as company shares, you can invest in bonds, commodities such as gold and commercial property. Diversification also helps spread the risk as you are not dependent on the performance of one company or fund.