S&S ISA advice

[GeoffF100]

With regard to Wuffle's other point, if the OP is starting from zero and investing a few hundred pounds a month, there is no point in paying for an ISA. The first £2,000 of dividends is tax free. Provided that he does not realise a gain of more than £12,300 in any one tax year, there is no Capital Gains Tax to pay. He does not even have to declare the gain if he disposes of less than £42,000.

In this case, take back what I said about Vanguard being the cheapest option. Freetrade wins hands down. It is hard to beat totally free. Just open a free GIA and buy VEVE. It is not in Freetrade's list, but they have put the accumulating version VHVG in twice. I expect that is a typo, and they do in fact offer VEVE. VWRL (which is more expensive but includes emerging markets) is there. The accumulating versions make working the capital gain less easy, and have wider spreads.

[DrFfybes]

The accumulating versions make working the capital gain less easy, and have wider spreads.

I didn't realise about the wider spread, but when starting out I never dreamt CGT or dividend tax would ever be an issue for me and was more focussed on building a holding. It turns out that for equities with divis reinvested, unless you keep good records of the trades (especially if you switch from HL to Alliance who then become ii !) the faff of going back and working out the average cost (moreso when you've sold some down prevously, and we'll gloss over ones bought before 2008) is much harder than finding the notional income from the annual statements and knocking it off the gain.

So if the fees are the same, I would strongly suggest the OP uses an ISA.

Paul

[GoSeigen]

With regard to Wuffle's other point, if the OP is starting from zero and investing a few hundred pounds a month, there is no point in paying for an ISA. The first £2,000 of dividends is tax free. Provided that he does not realise a gain of more than £12,300 in any one tax year, there is no Capital Gains Tax to pay. He does not even have to declare the gain if he disposes of less than £42,000.

Strongly disagree. ISAs are a great product but could be discontinued at any moment. The aim of the OP should be to make gains as fast as possible and therefore to take his greatest investment risks with the funds in his ISA. His safe investments should be outside the ISA, He could easily make very rapid gains, for example I started two SIPPS about four years ago and they have grown at CAGR of 54% and 64% respectively since opening. In pound figures that means I have invested £11500 total in each (c£3000 pa) but they are now valued at £38000 and £46000 respectively. If these were outside a tax wrapper I'd already have a minor headache; imagine if the same happened to the OP's investments as it easily could, and then HMG decided to discontinue ISAs. It would be very annoying indeed.

GS

[GeoffF100]

The accumulating versions make working the capital gain less easy, and have wider spreads.

I didn't realise about the wider spread, but when starting out I never dreamt CGT or dividend tax would ever be an issue for me and was more focussed on building a holding. It turns out that for equities with divis reinvested, unless you keep good records of the trades (especially if you switch from HL to Alliance who then become ii !) the faff of going back and working out the average cost (moreso when you've sold some down prevously, and we'll gloss over ones bought before 2008) is much harder than finding the notional income from the annual statements and knocking it off the gain.

So if the fees are the same, I would strongly suggest the OP uses an ISA.

Paul

The Freetrade GIA is totally free of both ongoing charges and trading charges. The Freetrade ISA costs £3 per month with free trading. That would be a big slice out of a £100 monthly investment. If you use the GIA, use the income versions of the ETFs and keep a record of purchases and sales. Freetrade should do that for you, but it is best to have your own records. If you move your account, you will need your own records.

With the accumulating ETFs you do avoid FX commission of the $ dividends. Nonetheless, we are discussing a relatively small investment here, and the Freetrade FX commission is relatively low at 0.5%.

[plaguedbyfoibles]

The accumulating versions make working the capital gain less easy, and have wider spreads.

I didn't realise about the wider spread, but when starting out I never dreamt CGT or dividend tax would ever be an issue for me and was more focussed on building a holding. It turns out that for equities with divis reinvested, unless you keep good records of the trades (especially if you switch from HL to Alliance who then become ii !) the faff of going back and working out the average cost (moreso when you've sold some down prevously, and we'll gloss over ones bought before 2008) is much harder than finding the notional income from the annual statements and knocking it off the gain.

So if the fees are the same, I would strongly suggest the OP uses an ISA.

Paul

The Freetrade GIA is totally free of both ongoing charges and trading charges. The Freetrade ISA costs £3 per month with free trading. That would be a big slice out of a £100 monthly investment. If you use the GIA, use the income versions of the ETFs and keep a record of purchases and sales. Freetrade should do that for you, but it is best to have your own records. If you move your account, you will need your own records.

With the accumulating ETFs you do avoid FX commission of the $ dividends. Nonetheless, we are discussing a relatively small investment here, and the Freetrade FX commission is relatively low at 0.5%.

Could it be worth pursuing a strategy in which I open a GIA with Freetrade at first before transferring some of the cash to their S&S ISA offering?

[plaguedbyfoibles]

Oh, also, I forgot to mention this but it is extremely pertinent.

I am still living with my parents, so my living costs aren't exorbitantly high.

Edit: Don't want to add too many posts here, but was wondering with the Freetrade GIA, what costs would I incur?

I see there are no share dealing fees, no platform fee etc.

I am potentially interested in using the Freetrade GIA to invest in an ETF to start with, but am not sure how ETFs usually handle management fees. Are these usually taken out of the ETF's overall investment portfolio?

[Alaric]

but am not sure how ETFs usually handle management fees. Are these usually taken out of the ETF's overall investment portfolio?

What you see is what you get. They can take their charges either from capital or income. either way you see the performance after charges. Thus an ETF tracker may slightly under perform the index it is tracking.

[GeoffF100]

Oh, also, I forgot to mention this but it is extremely pertinent.

I am still living with my parents, so my living costs aren't exorbitantly high.

Edit: Don't want to add too many posts here, but was wondering with the Freetrade GIA, what costs would I incur?

I see there are no share dealing fees, no platform fee etc.

I am potentially interested in using the Freetrade GIA to invest in an ETF to start with, but am not sure how ETFs usually handle management fees. Are these usually taken out of the ETF's overall investment portfolio?

Only 0.5% on your dollar dividends (i.e. 0.5% of about 1.5% p.a. of the capital value of your ETF). There are costs within the ETF itself, but they are paid by everyone who invests in the fund irrespective of the platform. Freetrade makes money from ISAs, SIPPs, Freetrade Plus and FX commission. The free service costs them very little to run, draws customers in, and wins publicity.

[DrFfybes]

OK, I'm going to chance my mind slightly, and throw in what is planned for our great neices/nephews. This isn't advice, the OP may choose differently.

Junior ISA. Investing in the Fund 'version' of VWRL - the Vanguard FTSE Global All Cap Index.

With HL the only cost is the 0.45% account fee. You can invest from £25/month or £100 lump sums.

Vanguard has a 0.15% fee, however their minimum investment sums are much higher, £100/month or £500 lump sum.

As there are 10 of the little darlings, then one suits our needs better than the other, but for those with parents willing/able to top up or hold cash and make larger trades, then things are different.

Paul

[vagrantbrain]

On the subject of ISA v non-ISA it might be worth considering that you've got a good 40 years of working life left and your financial situation may change in the future and you might regret not using the ISA allowances in earlier years.

Just thinking of myself: similar situation in my twenties, never thought it remotely possible i'd end up with a high 5-figure income and 6-figure investments just a couple of decades later so kept all my investments outside of ISAs to save on fees. CGT wasn't likely to be an issue and tax on dividends didn't start till something like £35k. Taxation of dividends then changed, and if I was a betting man i'd wager the taxation of CGT will change for the worst in the not too distant future. A few pay rises and a couple of good years of investment returns later the time had come that CGT and dividend tax was becoming probable for me, the dealing costs of selling everything and rebuying inside an ISA wiped out any savings I made on ISA fees over the previous 15ish years - wish i'd been more forward thinking so I didn't have to use up my ISA allowances investing money previously saved.

[JohnB]

The OP started by saying they wanted an ISA, but why not a LISA, to get the 20% government uplift. They are living at home, so a house purchase may well be coming up, and a LISA will provide a better deposit.

[GeoffF100]

On the subject of ISA v non-ISA it might be worth considering that you've got a good 40 years of working life left and your financial situation may change in the future and you might regret not using the ISA allowances in earlier years.

The point here is that the OP is assumed to be investing a small sum of money each month - much less then the £20K ISA allowance. He will not lose anything by not taking up ISA allowances that he could not fill anyway. Provided that his investments amount to less than the ISA allowance, and his capital gains amount to less than the CGT allowance, he can sell up and move his money into an ISA. In the meantime he saves money.

[vagrantbrain]

On the subject of ISA v non-ISA it might be worth considering that you've got a good 40 years of working life left and your financial situation may change in the future and you might regret not using the ISA allowances in earlier years.

The point here is that the OP is assumed to be investing a small sum of money each month - much less then the £20K ISA allowance. He will not lose anything by not taking up ISA allowances that he could not fill anyway. Provided that his investments amount to less than the ISA allowance, and his capital gains amount to less than the CGT allowance, he can sell up and move his money into an ISA. In the meantime he saves money.

My point was that it might be small change now but it can add up over the years - a couple of hundred a month into a global tracker over the last 10 years would be worth something like £40k now, which is a sizeable amount to have unsheltered. Should the desire or need to put it in an ISA arise then that's 2 years allowances used just to transfer existing investments without adding more. Saving £40 a year on fees would be wiped out by transferring just 2 holdings into an ISA, a portfolio of say 12 ITs could cost c.£250, or 7 years of ISA fees. It was just something to consider.

[Alaric]

In the meantime he saves money.

With some Brokers, notably ii, if you take out an investment account, you get an ISA thrown in for no extra cost. ii charge £ 9.99 a month, but sort of give some of it back in free trade allowances.

Investment Accounts are to an extent competing with paper share certificates, but are there any Brokers where the investment account is gratis? Presumably the trading fees would be loaded to compensate.

[GeoffF100]

In the meantime he saves money.

With some Brokers, notably ii, if you take out an investment account, you get an ISA thrown in for no extra cost. ii charge £ 9.99 a month, but sort of give some of it back in free trade allowances.

Yes, but you still have to pay £9.99 per month with ii. They do not refund that.

In the meantime he saves money.

Investment Accounts are to an extent competing with paper share certificates, but are there any Brokers where the investment account is gratis? Presumably the trading fees would be loaded to compensate.

Yes, the Freetrade GIA is free. There are no platform charges for the GIA, and the trades are also free, as the name implies. You do, however, have to pay £3 per month if you open an ISA. I am suggesting the OP opens a GIA, but does not open an ISA until he needs it.

https://freetrade.io/general-investment-account

[GeoffF100]

On the subject of ISA v non-ISA it might be worth considering that you've got a good 40 years of working life left and your financial situation may change in the future and you might regret not using the ISA allowances in earlier years.

The point here is that the OP is assumed to be investing a small sum of money each month - much less then the £20K ISA allowance. He will not lose anything by not taking up ISA allowances that he could not fill anyway. Provided that his investments amount to less than the ISA allowance, and his capital gains amount to less than the CGT allowance, he can sell up and move his money into an ISA. In the meantime he saves money.

My point was that it might be small change now but it can add up over the years - a couple of hundred a month into a global tracker over the last 10 years would be worth something like £40k now, which is a sizeable amount to have unsheltered. Should the desire or need to put it in an ISA arise then that's 2 years allowances used just to transfer existing investments without adding more. Saving £40 a year on fees would be wiped out by transferring just 2 holdings into an ISA, a portfolio of say 12 ITs could cost c.£250, or 7 years of ISA fees. It was just something to consider.

I have already suggested that the OP bed & ISA his ETF before it reaches £20K, so that he does not lose any ISA allowances that he can profitably use. That bed & ISA costs nothing on Freetrade (except for the market spread). He cannot hold ITs in a Freetrade GIA, but he can hold Vanguard ETFs, which was what we were discussing.

[GeoffF100]

Trading 212 is similar to Freetrade, but there is no charge for the ISA.

[plaguedbyfoibles]

Trading 212 is similar to Freetrade, but there is no charge for the ISA.

Yeah that was my first choice, unfortunately due to the idiocy of the r/WSB wannabe retail investors and their GameStop mania, T212 still has a freeze on new signups.

[doug2500]

On the subject of ISA v non-ISA it might be worth considering that you've got a good 40 years of working life left and your financial situation may change in the future and you might regret not using the ISA allowances in earlier years.

Just thinking of myself: similar situation in my twenties, never thought it remotely possible i'd end up with a high 5-figure income and 6-figure investments just a couple of decades later so kept all my investments outside of ISAs to save on fees. CGT wasn't likely to be an issue and tax on dividends didn't start till something like £35k. Taxation of dividends then changed, and if I was a betting man i'd wager the taxation of CGT will change for the worst in the not too distant future. A few pay rises and a couple of good years of investment returns later the time had come that CGT and dividend tax was becoming probable for me, the dealing costs of selling everything and rebuying inside an ISA wiped out any savings I made on ISA fees over the previous 15ish years - wish i'd been more forward thinking so I didn't have to use up my ISA allowances investing money previously saved.

I agree with all this. If it was me I'd go for an XO ISA - no fees, £5 a trade and invest £1000 at a time once it's been saved. But then I'm sceptical about new, free to trade accounts. What are spreads like for example?

[fisher]

On the subject of ISA v non-ISA it might be worth considering that you've got a good 40 years of working life left and your financial situation may change in the future and you might regret not using the ISA allowances in earlier years.

Just thinking of myself: similar situation in my twenties, never thought it remotely possible i'd end up with a high 5-figure income and 6-figure investments just a couple of decades later so kept all my investments outside of ISAs to save on fees. CGT wasn't likely to be an issue and tax on dividends didn't start till something like £35k. Taxation of dividends then changed, and if I was a betting man i'd wager the taxation of CGT will change for the worst in the not too distant future. A few pay rises and a couple of good years of investment returns later the time had come that CGT and dividend tax was becoming probable for me, the dealing costs of selling everything and rebuying inside an ISA wiped out any savings I made on ISA fees over the previous 15ish years - wish i'd been more forward thinking so I didn't have to use up my ISA allowances investing money previously saved.

I agree with all this. If it was me I'd go for an XO ISA - no fees, £5 a trade and invest £1000 at a time once it's been saved. But then I'm sceptical about new, free to trade accounts. What are spreads like for example?

It's £5.95 a trade. But otherwise I agree with you.