The answer, as with most of these things, is that it depends.
A few numbers first:
Now, if you are over 50, or from 6th April for everyone else, you can contribute up to £5,100 to a cash ISA, or £10,200 to a stock and shares ISA, within the overall limit of £10,200.
Current (2009/2010) CGT allowance is £10,100.
If you do not make capital gains exceeding your allowance in any one year, then yes there will be no advantage to using an ISA in this respect.
However, many investments generate income. The amount will obviously vary - the yield on an emerging markets fund is likely to be very low, whilst the yield on a junk bond fund is likely to be high, for example. If you are a basic rate tax payer, income will normaly be treated as tax paid (for example, dividends received from UK shares). However, if you are a higher rate tax payer, or become one as a result of the gross income generated, you are liable for tax on the income, regardless of whether you take the income or not.
Therefore there might be a tax advantage in respect of income, depending upon your circumstances.
There might also be one or two other considerations. ISA alowances expire each year - if you do not use it, it will be lost. After a few years of investment, your holdings might grow to a point where CGT is a problem, or you might become a higher rate taxpayer due to promotion, for example. ISAs will shelter gains and income - effectively they remove your holdings from the tax system, as much as is reasonably possible. This is largely true (excepting unavoidable things such as the 10% tax credit on UK dividend income, for example) pretty much until you get to things such as IHT.
This can get very significant over time - I know people who have hundreds of thousands in ISAs (after many years of investment obviously), which can be very useful for tax planning. For example, you can combine this with income drawdown (USP), you can use it for income / capital when you need to realise a large gain on bonds without paying any tax, and so on.
In general, there is no disadvantage to using an ISA - no additional costs etc, no loss of flexibility in drawing on your holdings and so on. Some investments can't be held within an ISA of course, so this might be a problem depending upon what you actually want to do.
There are cases where you might be better off using your cash allowance rather than your stocks and shares allowance. For example, a basic rate tax payer may see no advantage in having OEICs or unit trusts in an ISA, as described above. However, if you have unwrapped savings accounts, these will be taxed as interest arises. Putting them in your cash ISA instead would avoid this.
As I said it all depends upon your personal circumstances.
Hope this helps.
A few numbers first:
Now, if you are over 50, or from 6th April for everyone else, you can contribute up to £5,100 to a cash ISA, or £10,200 to a stock and shares ISA, within the overall limit of £10,200.
Current (2009/2010) CGT allowance is £10,100.
If you do not make capital gains exceeding your allowance in any one year, then yes there will be no advantage to using an ISA in this respect.
However, many investments generate income. The amount will obviously vary - the yield on an emerging markets fund is likely to be very low, whilst the yield on a junk bond fund is likely to be high, for example. If you are a basic rate tax payer, income will normaly be treated as tax paid (for example, dividends received from UK shares). However, if you are a higher rate tax payer, or become one as a result of the gross income generated, you are liable for tax on the income, regardless of whether you take the income or not.
Therefore there might be a tax advantage in respect of income, depending upon your circumstances.
There might also be one or two other considerations. ISA alowances expire each year - if you do not use it, it will be lost. After a few years of investment, your holdings might grow to a point where CGT is a problem, or you might become a higher rate taxpayer due to promotion, for example. ISAs will shelter gains and income - effectively they remove your holdings from the tax system, as much as is reasonably possible. This is largely true (excepting unavoidable things such as the 10% tax credit on UK dividend income, for example) pretty much until you get to things such as IHT.
This can get very significant over time - I know people who have hundreds of thousands in ISAs (after many years of investment obviously), which can be very useful for tax planning. For example, you can combine this with income drawdown (USP), you can use it for income / capital when you need to realise a large gain on bonds without paying any tax, and so on.
In general, there is no disadvantage to using an ISA - no additional costs etc, no loss of flexibility in drawing on your holdings and so on. Some investments can't be held within an ISA of course, so this might be a problem depending upon what you actually want to do.
There are cases where you might be better off using your cash allowance rather than your stocks and shares allowance. For example, a basic rate tax payer may see no advantage in having OEICs or unit trusts in an ISA, as described above. However, if you have unwrapped savings accounts, these will be taxed as interest arises. Putting them in your cash ISA instead would avoid this.
As I said it all depends upon your personal circumstances.
Hope this helps.
Aston1st
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Can you put the money for an ISA in a Trading account and trade futures from that account, any profits based on the deposited amount being tax free?
I would like to allocate my annual entitlement to my own account and trade it, rather than give it to a Fund Manager to manage. Is this possible, trading Futures or Options?
I would like to allocate my annual entitlement to my own account and trade it, rather than give it to a Fund Manager to manage. Is this possible, trading Futures or Options?
This has never come up in my experience, so I don't know for sure, but I very much doubt it. I do know someone who trades CFDs in his SIPP, but bear in mind that SIPP and transaction costs will tend to mean that you need to be talkingabout pretty sizeable sums to make it worthwhile.
I'll see if I can find out, but as you would imagine this is something of a niche area of interest (not on here obviously, but in the world in general).
Aston1st
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The transaction costs would not be a problem as I will have a volume discount through my clearer. I was thinking that if banks are offering ISA accounts for normal saving accounts or current accounts, therie should not be too much distinction for ones trading account.
Maiden22 I look forward to what you can discover.
Maiden22 I look forward to what you can discover.
From what I can gather, the answer is no. Within an ISA you are more or less limited to vanilla things: funds (OEICs, unit trusts), etfs, investment trusts and individual stocks, gilts and bonds etc.
I've had this from James Hay, a specialist provider who take the approach that if the Revenue allows it, so do they. You could check with HMRC directly (contrary to what everyone thinks, they are usually pretty friendly and helpful) but I don't think you're going to have much joy I'm afraid.
I've had this from James Hay, a specialist provider who take the approach that if the Revenue allows it, so do they. You could check with HMRC directly (contrary to what everyone thinks, they are usually pretty friendly and helpful) but I don't think you're going to have much joy I'm afraid.
