If you haven’t used up your 2018-2019 Isa allowance (£20,000) yet, and had planned on making some investments in the near future, you should do so with a stocks and shares Isa before the end of the tax year. As with a cash Isa, this is an account that acts as a wrapper around your investments, allowing them to grow free of tax on capital growth or income.
Note that if you have money in another Isa, such as a cash or innovative finance Isa, this will come out of your total £20,000 allowance. So if you have £5,000 in a cash Isa, you can only put £15,000 into your stocks and shares Isa.
Although an investment Isa is generally referred to as a stocks and shares Isa, that label is somewhat misleading. In addition to shares listed on major stock exchanges around the world, you can hold investment trusts; unit trusts and open-ended investment companies (Oeics); exchange-traded funds (ETFs); and corporate and government bonds in your Isa.
The fees to consider
You can open a stocks and shares Isa through an investment platform. When deciding which one to opt for, start by considering the fees you’ll have to pay. You will be charged a platform fee, which will either be a flat fee (best for people planning to invest a lot of money) or a percentage of the value of your funds (which would probably be better for those looking to invest small amounts).
You will also be charged for buying and selling investments, so make sure you take those charges into account, too. However, as we’ve learned in recent surveys asking about the factors that are most important to MoneyWeek readers when they are picking an investment platform, cheap fees on their own aren’t enough. Reliable and accessible customer service is also important, as is the availability of a wide range of investments. See below for some recommendations of brokers suitable for varying circumstances.
Keep in mind that if you want to transfer money from a cash Isa to a stocks and shares Isa you can do so without affecting your annual allowance, but make sure you do it through the formal transfer process (see page 32). You can’t just transfer investments held outside an Isa wrapper into a stocks and shares Isa. To do this, you’ll have to sell your investments, and then buy them back within the wrapper.
Some brokers will reduce trading fees if you transfer an investment into a regular dealing account on their platform, then sell it to buy back via an Isa. In this situation you need to take into account capital-gains tax. If you are set to breach your allowance (£11,700 for this year, £12,000 for 2019-2020), consider splitting the sales over two tax years, or transferring an investment to a spouse that hasn’t yet used up their own CGT allowance, so that they can sell it and then buy it back within an Isa.
Which broker to choose
If you’re investing a small amount
Charles Stanley, Close Brothers and Cavendish Online are generally the best brokers in these circumstances. They have low percentage fees, says finance blog Monevator. Going through discount broker Cavendish also gets you cheaper access to investment platform Fidelity’s funds.
If you’re investing larger amounts
Flat-fee brokers are better for most investors who’ve accumulated more than £25,000 in an Isa, according to Monevator. iWeb, which is owned by Halifax, seems a compelling choice for larger portfolios because there is just a one-off £25 account opening charge and a £5 charge per trade after that.
If you’re looking for good investment range and customer service
Interactive Investor and AJ Bell Youinvest are sensible choices if you want a large range of investments to choose from. Hargreaves Lansdown’s Vantage Isa was named the “Best Direct Platform” at last year’s Platforum awards, and generally has a reputation for good customer service, but charges a 0.45% platform fee.
Note that passive investment giant Vanguard also now runs its own platform – Vanguard Investor – which allows you to hold Vanguard funds very cheaply. Clearly this is only appropriate if you are looking to hold their funds. As you might expect, given the company’s reputation for being such a low-cost provider, the platform charges at Vanguard are low: there is an annual fee of 0.15% on investments up to £250,000, which is less than half the industry average, as the finance blog Money to the Masses points out. Above £250,000, there is no fee. This means there is a maximum platform fee of £375.
Interestingly, however, it may ultimately be cheaper to buy Vanguard funds through Interactive Investor (or “ii”), says Money to the Masses: ii is the largest platform to operate a fixed-fee model, and charges £22.50 every quarter, or £90 a year, regardless of your portfolio size. Because the underlying fund charge for investing in Vanguard funds is identical on both platforms, this means that if you invest more than £60,000 in Vanguard funds, then you would be better off doing this via ii.