Stocks and Shares ISA accounts Usually offered by banks and building societies and wealth managers. These are investment accounts held within the tax free ISA wrapper. The provider (or investor themselves) will buy and sell securities which are held within the ISA account. All capital gains, dividend payments, bond interest etc. are tax free.
What securities can be held in a Stocks and Shares ISAs ?
The answer is pretty much anything:
Shares list on a recognised stock market anywhere in the world, e.g. the London stock exchange, AIM, New York stock exchange, NASDAQ etc.
Unit trusts
OEICS
Investment funds
Government bonds
Corporate bonds
ETF’s
New issues
Who can open a Stocks and Shares ISA ?
Stocks and shares ISAs can be opened by any UK resident over the age of 18.
If the investor ceases to be a UK resident, they should inform their ISA provider at the earliest opportunity. Their ISA account will remain open, but they will not be allowed to make new subscriptions.
Yearly allowance
£ 20,000.00 in total can be subscribed to a stocks and shares ISA, or combination of ISA products during any one tax year.
There is no minimum subscription stipulated in HMRC ISA regulations, but most ISA providers will determine their own minimum, usually around £ 200.00.
The tax year runs April 6th to April 5th of the following year. Once the tax year has ended, unused ISA allowance is lost.
Fees
Stocks and shares ISAs will likely suffer management fees, this is how the provider will make money. The level of fees will be determined by the provider, type of service and, often, be linked to the return generated by the provider, i.e. the higher the profit generated by the ISA account, the higher the fees deducted. The level of fees should be a consideration when selecting a stocks and shares ISA.
Types of Stocks and Shares ISA accounts
There are a number of options to consider, the following are common options available:
Managed portfolios – typically the investor will select a risk profile, e.g. low, mid, high, and the provider will invest on the investor’s behalf in a basket of securities meeting that risk profile. All of the provider’s clients will hold the same securities within each risk profile.
Bespoke portfolios – these are usually for higher net worth individuals, whom also invest large sums of money with the provider outside of the ISA wrapper. An investment manager will meet with the investor and determine an investment strategy that meets the investor’s specific financial needs and risk appetite. Usually higher fees will be charged for this service.
Self-select portfolios – in this case, the investor instructs the provider which securities they wish to trade, and makes all the investment decisions. The provider merely carries out the investor’s instructions. If the investor trades regularly, e.g. once a quarter, there may be no management fees charged, but the provider will charge commission on every trade made by the investor.
Application form
Before the investor can subscribe to his cash ISA they will need to sign an ISA application form. This application form is “rolling”, which means the investor will not need to sign a new application form, if they have made any subscriptions during the previous tax.
If there is a break in subscriptions for one tax year then the investor will need to sign a new application form.
EXAMPLE
Investor signs an application form in tax year 16/17 and subscribes during this tax year, but does not subscribe during 17/18, hence to subscribe in 18/19 they will need to sign a new application form. If they had subscribed in 17/18, then no application form would be required for 18/19,
Transferring your ISA account to another ISA provider
Stocks and shares ISA’s can be transferred to a new ISA provider at any point during the tax year. They can be transferred to another stocks and shares ISA, or to a cash ISA (the securities will need to be sold in this case), current year subscriptions with the old provider would now be reflected by the new ISA provider. You can transfer up to £ 4,000.00 into a LISA account, but I will discuss this separately in a post covering LISA accounts.
To transfer an existing ISA account, the investor should request the new provider to “transfer in” the old account. An ISA transfer form will need to be signed by the investor, and the new provider will contract the old one on your behalf.
When transferring your stocks and shares ISA to a new provider, the ISA can be transferred “in-specie”, i.e. the securities held by the old provider will be transferred to the new provider and reflected in your new ISA account, or those securities could be sold and the cash generated transferred. The choice is up to the investor.
If the investor stops making subscriptions, the ISA account does not close, unless the investor requests the account to be closed.