What Are My ISA Options
There are different types of ISAs available to investors. What you choose is likely to depend on a number of factors such as investment time horizon or attitude to risk.
Stocks & Shares ISA
What is it?
It’s a tax-efficient investment account that lets you put your money into cash and/or different types of investments. Because these investments sit within your tax-free ISA wrapper, you do not have to pay capital gains tax on profits arising from your stocks and shares investments. In addition, there is no tax on dividend income from shares or interest paid on bonds.
A stocks & shares ISA can invest in a range of different type of investments including, unit trusts, Open Ended Investment Companies (OEICs), investment trusts and corporate/government bond funds. The range of investments will vary depending on the ISA provider.
As with all stock market exposure, there is a danger that the value of your investments can go down as well as up. At least within an ISA, whatever returns you do make are not liable to a tax charge. Please note tax rules can change at any time.
Who can invest?
You can invest in a stocks and shares ISA if you are a UK resident and are aged 18 years or over.
How much can you invest?
You can save up to a maximum set by the government each tax year into a stocks and shares ISA. You do not have to invest the maximum amount and you can save into other ISAs simultaneously so long as the combined total investment is within the £15,240 annual tax-free allowance for 2016/17 (the annual ISA limit is set to rise to £20,000 from April 2017). However, you cannot take out two or more ISAs of the same type, in the same tax year.
It is important to remember that ISAs are distinct for every tax year – from 6 April to 5 April the following year. There is no roll over of unused ISA allowance, so if you miss the end of tax-year deadline, that’s it.
The minimum investment in a stocks and share ISA varies depending on the product provider - it could be anything from a £100 or £1,000 lump sum; to £10 or £50 per month.
Other ISA choices
In addition to stocks and shares ISAs, UK residents can choose to invest in Cash ISAs, Junior ISAs, Innovative Finance ISAs, Help to Buy ISAs and, from 2017, Lifetime ISAs. While Aberdeen Standard Investments offers stocks and shares ISAs, we do not offer these other products. If you do require further information on these products, see your financial adviser or visit https://www.gov.uk/individual-savings-accounts/overview.
How to Invest in an ISA
Investing in an ISA is simple – you can set up an ISA account in minutes via a host of online providers.
There are hundreds of cash ISA accounts available from banks and building societies. However, please note Aberdeen Standard Investments do not offer cash ISAs.
Those looking to invest in stocks and shares ISAs have access to a huge range of funds online. Investors who opt for a DIY ISA select the funds from the provider or an online investment service themselves. However many investors will construct an ISA portfolio with their adviser, who will invest and make changes on their behalf.
Regular and lump sum contributions
You can invest in a stocks and shares ISA with a lump sum or via regular payments.
For stocks and shares ISAs, lump sum payment options are useful, particularly if you want to make a last-minute contribution to your ISA at the end of the tax year. However, regular payments can provide a distinct advantage over lump sums particularly in volatile markets. When you invest on a regular basis you benefit from what is called ‘pound cost averaging’, this means you average out the price at which you purchase each part of your investment. So if you invested a £1,000 lump sum and bought shares priced at £1 each, you'd receive 1,000 shares. If you bought £500 worth of the same shares on a regular investment plan you'd buy 500 shares in the first month.
But if the share price went down to 90p the following month, you'd be receiving more shares for the same money (1,050 shares) as they are now priced lower. Obviously share prices can fluctuate but over time, 'drip feeding' into your ISA can provide benefits over lump sum investment.
Transferring an ISA
You can transfer any existing cash or stocks and shares ISA you have with other companies to Aberdeen Standard Investments where they will be held in a stocks and shares ISA.
Please note if you want to transfer money you've invested into an ISA this current tax year, you must transfer all of it. There is greater flexibility on ISA investments from previous years - you have the option to make partial transfers to other providers and ISA products.
Your ISA provider may apply restrictions on transfers so you need to check terms and conditions. They may also levy a charge on ISA transfers.