There is a reason why the stocks and shares ISA are considered complicated, and this should not be a reason for one to change their stance on investing using this facility. The rules were overhauled and this, as expected, scared some people away.
The most important thing to consider if you do not understand what a certain investment product entails you should simply consult a financial advisor. This article is going to show you how easy it is to understand the new rules set for stocks and shares ISA.
What is a Stocks and Shares ISA?
The main issue that people had missed out on when the rules were overhauled is the way the money was going to be divided by the investment and the taxes to be incurred from profits gained from this investment. The stock and shares ISA can be bought from fund management firms, banks, and discount brokers.
The stock and shares ISA are very tax efficient, and it is a good way of protecting your future savings from massive taxes that will eventually eat into your gains. There are various assets you can include in your stocks and shares ISA; this may include bonds, stocks, commercial property, gold, and the government gilts.
All these can be put together to form your stocks and shares ISA. The main importance of this is to save on your gains wholly to avoid paying the Capital Gains Tax.
Stocks and Shares ISA Rules on Taxation
It should be noted that there are rules that govern the stocks and shares ISA. The amount that can be invested in the ISA is fixed from year to year, and the set rules are not applicable to change after the investor agrees and signs. For the year 2016/2017, the amount to be invested has been limited to 15,240 pounds.
This means all your investments in your stocks and shares ISA should not exceed the stated amount for that particular year. As an investor, you can utilize the whole amount and spread your investment across the stated amount or use a part of it.
This is where the ISA becomes very interesting if you had invested 10,000 pounds at the beginning and the amount grew to 30,000 pounds that mean you made a 20,000 pound gain. From the 20,000 gain, the taxable amount is any amount that has exceeded the 11,100 mark.
Capital Gains Tax for this particular year stands at 10% or 20% that means that 8,900 pounds stand as the taxable amount. If the investor had invested the amount in the stock and shares ISA, the 890 pounds paid as the tax would be avoided.
Choosing a stock and share ISA could be the difference between one making several thousand more on investment or losing the same on taxes. It is wise to have some of your portfolios in stocks and shares ISA.
Stocks and Share ISA Rules on Holdings
This is one of the issues that could make get most people by surprise, every investor is only entitled to a single ISA holding for one particular year, but there is an additional rule that could give you a chance to add on to your stocks and shares ISA.
Although one is only required to have one holding for every particular year, which begins from April to April of the next year, you have a choice on how you can break down the investments in your holding. One may decide to have the ISA investment contain stocks and shares or cash, or a percentage of both.
The amount invested into the ISA can also be paid in different ways; the investor can decide to make a whole payment or monthly installments. This is meant to give the investor flexibility and ease of mind as they invest.
The performance of your holdings will determine if you are going to stick with your firm or not. The investor should know that they are not forced to stick with one particular firm if it is not performing; they have the right to change to a better one.
If you want to switch to another firm before the end that particular tax year, you will have to transfer the full invested amount, you can only transfer a third of your amount from the previous year.
Stocks and Shares ISA Rules on the Investment Style
As an investor, you should be able to decide whether you want your ISA to be held by and active or a passive fund. The active fund investment style is mainly based on employing or investing your stock and shares ISA in a firm that has a fund manager that can make investment decisions and give you a better return at the end of your tax year.
The other way is to invest your stock and shares ISA in a passive fund, one that tracks the performance of a particular index like the FTSE 100, and if the index underperforms so does your ISA.
This could be a good thing since you will save on management fees or it could be tragic for your investment, and you may end up with a loss at the end of the tax year.The other choice you have is if you select your own assets and track them on your own. That will depend on your investment skills and knowledge alike.
ISA Rules on Regulations and Compensation
As an investor, the one thing that you should have in mind is that every investment carries with it risk so does the stocks and shares ISA. This should act as a concern and this is the reason you should select a firm that is covered by the Financial Services Compensation Scheme.
This covers your ISA for up to 50,000 pounds, and that is if the firm went under, but it does not cover for under performance. If you have any cash ISA savings, the commission will cover for up to 75,000 pounds.