Your guide to ISAs
Everything you need to know about our tax efficient account
March coming to a close, and we’ve begun another tax year.
Why is this important? This means you can now invest money in a stocks and shares ISA from your 2020/21 allowance.
ISAs — individual savings accounts — are unique to the UK and give holders a means of shielding money from the taxman.
What is a stocks and shares ISA?
There are a few different types of ISA out there but Freetrade offers a stocks and shares ISA, which makes sense because stocks and shares are our bag.
With a stocks and shares ISA, you can invest up to £20,000 a year and can benefit from any gains on this portfolio being largely free of tax.
‘Gains’ in this context means two things:
- Any money you make from dividends
- Any money you make from buying and selling stocks or ETFs at a profit
How does a stocks and shares ISA work?
Under the current rules, ISAs are not a one-time thing and your £20,000 allowance will reset at the end of every tax year.
That means, if you are fortunate enough to have £40,000 sitting around, you can put half of it into an ISA one year and the other half into the same account the next year.
A lot of people will tell you that ISAs are totally tax-free. This isn’t entirely true. If you buy non-UK stocks, you may be subject to local taxes, such as US withholding tax charged on dividend payments.
You should also bear in mind that tax treatment depends on your individual circumstances and the rules may be subject to future change.
Lastly, remember that you cannot transfer shares that you already hold into an ISA. You have to deposit cash into an ISA and then purchase shares. If you already have an ISA, however, you can transfer that account to another ISA provider.
What’s so special about a Freetrade ISA?
We got into the brokerage business to make investing simple and affordable. That’s the approach we also took when building our ISA offering.
We don’t charge custodial fees and we don’t charge any trading commissions.
Instead, you pay a flat fee of £3/month.
Once you’ve set up your account, you’ll be free to trade, free in the knowledge that no trading commissions are going to be eating into your investments.
Do I need an ISA?
When people hear the words ‘tax-free’ they have a tendency to leap up and down with joy and blindly throw money at the person that uttered them.
ISAs are a bit like that. People can be dead sure that they need one when they might not.
The key thing to remember is that, without an ISA, the UK government already lets you keep up to £12,000 a year in capital gains and £2,000 from dividends income tax-free.
That being the case, if you have an investment portfolio that you think is unlikely to increase in value by more than £12,000 in the coming tax year, you may not need an ISA.
However, it is also worth bearing in mind that the ISA rules do not allow you to claim unused allowances from previous years, so you may want to put some money into an ISA so that you have a larger ISA pot in future years.
We’re here to help!
If you have any questions about ISAs then feel free to reach out to us via the Freetrade app, on social media or via email. 👋
Bear in mind, just as in a Freetrade Basic Account, your capital is at risk when you invest within an ISA.
Find out how to open an ISA here.
This should not be read as personal investment advice. When you invest, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.
Freetrade does not provide investment advice and individual investors should make their own decisions or seek independent advice. The value of investments can go up as well as down and you may receive back less than your original investment. Tax laws are subject to change and may vary in how they apply depending on the circumstances.
Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).
