Self Select ISAs

How to get the most from a self-select individual savings account

Looking for a tax-free home for your investments? Want to pick your own shares? If so, a self-select ISA could be for you.

What are self-select ISAs?

A self-select individual savings account (ISA) is designed to house shares and shelter the returns from tax. As the name suggests, you select which shares to hold in your ISA, rather than have a fund manager make the decisions for you.

Self-select ISAs, like their cash ISA counterparts, are free of income tax and capital gains tax. The maximum you can hold in a self-select ISA or any stocks and shares ISA this tax year (2017/18) is £20,000.

Note that your annual ISA allowance is £20,000 but you can split this across different types of ISA - so you could have £12,000 in a cash ISA, for example, and £8,000 in a self-select ISA.

ISA tax advantages

The tax advantages of ISAs have reduced in recent years because of changes to the general tax regime.

For example, everyone has a £5,000 annual dividend tax allowance, which means they can earn this much in dividend income without having to pay tax.

The figure falls to £2,000 in April 2018, but this is still sufficient to protect the income from most private share portfolios from tax.

Only those on higher rates of tax who earn more than £5,000 of dividend income in a year (£2,000 from April 2018) thus enjoy additional income tax benefits from holding shares in an ISA.

As far as capital gains tax (CGT) is concerned, the annual allowance currently stands at £11,300. This is the amount of profit you could make from the sale of shares in a year without paying tax, even if those shares were held outside an ISA.

Again, it can be seen that CGT is only likely to become an issue for those with substantial (and profitable) share portfolios. But anyone who has invested in shares over a number of year might find themselves in this situation, which is why putting shares into ISAs makes sense for CGT purposes.

Why choose a self-select ISA?

Experienced investors who want more control over their investment choices often go down the self-select ISA route. They offer much more control, as you’re the one making the investment decisions.

Remember that the value of your investment and the income derived from it can go down as well as up, and you may get back less than you originally invested.

What types of self-select ISAs are available?

As well as individual shares, there is a 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 you choose to use a self-select ISA, you must also choose whether you need a broker that offers advice or one that doesn’t, known as an execution-only broker.

Execution-only brokers often have the lowest fees as they simply provide the internet trading platform you’ll need to trade shares and other investments. Conversely, broker firms that offer advice charge more because they will help you decide which shares to pick – using their knowledge of the markets.

Product information supplied has been provided by each individual brand not MoneySuperMarket

Self-Select ISAs : Ordered A-Z

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£500 Transfer Help!

Currently offer to pay up to £500 towards any costs involved in moving your ISA

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Welcome Gift

£25 gift card when you start

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Welcome Rate

Trade online at our lowest dealing rate of £5.95 in your first 3 months


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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, you should bear in mind that you need to keep an eye on how your investments are performing. If you don’t have the time to do this, a self-select ISA is probably not right for you.

Another advantage of a self-select ISA is the tax benefits. As investment growth and dividends received within the ISA are free of capital gains and additional income tax, this can be particularly advantageous for higher rate taxpayers and those with large share portfolios.

You can change your investments within your ISA if you want to, subject to the £20,000 annual investment limit.

Stocks and shares ISAs are eligible for the Financial Services Compensation Scheme (FSCS) up to £50,000 per person, per institution.

What are the disadvantages of a self-select ISA?

Self-select ISAs can be higher risk than other ISAs. If you are in any doubt as to whether these plans are suitable you should seek independent financial advice – it’s possible your investments might fail, so there’s no guarantee you’ll get your money back.

How can MoneySuperMarket help?

MoneySuperMarket doesn’t offer a comparison service for this type of product but we have compiled a list below of providers who can help.

It can be tricky working out where to go for your self-select ISA, but MoneySuperMarket.com enables you to review 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.

Want your investments to work harder? You can earn a current estimated return of 7.0%* per year with Funding Circle.

Interest rates on traditional savings accounts remain relatively small, but don’t despair – with peer to peer lenders such as Funding Circle, you could earn great a return by lending to small businesses in the UK.

There’s more risk associated with this savings solution – there’s no guarantee you’ll get your money back as it’s outside the Financial Services Compensation Scheme.

However, the Financial Conduct authority does regulate this fast-growing market. And if you go in with your eyes open, this could be the savings solution you’ve been looking for…

*The current estimated rate is the average annual gross interest rate accepted on the last 100 loans through the marketplace minus our servicing fee and estimated bad debts in the future. This rate is before any applicable tax. See the full calculation at fundingcircle.com. Rate is updated daily. Rate correct as at 11/07/2016.

Funding Circle

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Expected annualised rate after fees and bad debt

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Great for
  • You can choose each and every individual business you would like to invest in
  • If you would like more of a hassle-free solution, you can pre-select the businesses you want to lend to and the rate you're happy to earn and let the Autobid invest for you
But be aware that
  • 1% annual fee applies on the money you have lent
  • There is no provision fund within the Funding Circle platform and is operated similar to an investment - the higher the risk band, the higher rates apply - but remember these are the riskier business
  • Your savings are not protected by the FSCS compensation scheme

 

Note: MoneySuperMarket’s ISA service provides you with information on various ISAs as well as guides to help you decide on the right product for you. We earn commission based on arrangements we make to introduce you to product providers, further details are available on request. We do not provide you with advice and you should discuss specific product terms with the product provider.