One of the biggest killers of long term investing gains is the tax man. A stocks & shares ISA is a great way to avoid this problem. This tax advantaged investment vehicle has gained a huge amount of popularity in recent years. So why should you open one and what are the advantages?
Tax efficiency
The main reason for opening an ISA is the tax break. Any returns you generate, either through capital gains or dividends, are completely tax free. This means you get to keep all those lovely profits without having to give a sizeable chunk to the tax man.
Regular contributions
So paying no tax sounds too good to be true? Well there is a slight catch. You are limited to depositing £20,000 per year into your ISA, as of time of writing. They have been steadily raising this amount since inception, though there’s also nothing to say they won’t reduce it either at some point. So of course this limits you if you have a large lump sum to invest. The best bet is to start depositing early and if possible try and max out your deposit limit each year.
Flexibility & diversification
Stocks & Shares ISA’s allow you to invest in a wide range of investment options. Including individual stocks, bonds, investment trusts & exchange traded funds. The exact offering will vary from platform to platform, so if you have something specific in mind to invest in make sure your chosen investing platform offers that through an ISA. This allows you to build a diversified investment portfolio, all within your stocks and shares ISA.
Long term growth
Investing in the stock market over the long term has historically outperformed other investment classes. By using an ISA to invest in stocks you have the potential to grow your wealth more substantially over time.
Easy to set up
An ISA is incredibly easy to set up and start investing. You can open one through a wide range of places, including banks, online brokers and investment platforms. You likely already have some form of account with a company that offers stocks & shares ISA’s. Don’t be intimidated, trust me it’s really straight forward.
Regular contributions
There’s no need to go straight in with the maximum deposit either. If you don’t have that amount to invest or would rather test the waters first then feel free to do so. You can deposit as often as you like throughout the year, just not beyond your annual limit. So if you wanted to deposit £100 per month, you can set that up and have it come out of your bank account automatically.
No need to fill out a tax return
If you don’t already need to, then this won’t change anything. You are not required to report your capital gains to HM revenue & Customs when you sell any of your investments held in your stocks & shares ISA.