Invest v ISA accounts

đź“Š Investing
1

Hello everyone
I’m new to this. When would I buy share in the INV account and when in the ISA account?

2

Welcome to the Community :pray:

I can mention the differences between the two account types. Then you can decide which one suits you best.

So, the Invest and ISA accounts differ in the following ways:

Invest Account:

  • It does not offer any tax advantages or exemptions.
  • You may be subject to taxes on capital gains and dividends earned from your investments in this account.

ISA Account:

  • The ISA (Individual Savings Account) account is a tax-efficient savings or investment account available only to UK residents.
  • Any capital gains, dividends, or interest earned within the ISA account are tax-free.
  • There is an annual allowance for how much you can deposit into an ISA, which is currently set at ÂŁ20,000 for the 2023/24 tax year.

Just so you know, there are stocks that are not ISA-eligible, and you can find them in the Invest account only.

3

Thanks for the welcome.

So it would make sense to maximise the ISA account and only use the INV account if I wanted to invest in stocks that aren’t ISA eligible.

4

As a UK investor, 100% yes. You want to shield as much as your gains from the tax man as possible.

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5

The ISA account is quite a gem for UK investors due to its tax-efficient wrapper. Essentially, any gains made within an ISA, be it from stocks, bonds, or dividends, are not subject to capital gains tax or additional income tax. This feature makes an ISA an ideal spot for investments you believe will yield significant returns over time, as these returns can grow tax-free.

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6

Am I right in understanding we still aren’t allowed to buy fractional shares from an ISA? I know they announced it should change in the future, but any news on when? It does make it hard to get started.

7

No you can buy fractionals in an ISA.

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8

Really? That’s great - I’m currently with Freetrade for my ISA at the moment and they don’t allow it (yet) so am considering transferring across

9

It’s a moving target, but a single share is a fraction of a company, and some can be expensive - Berkshire Hathaway for example. As a result, offering investors to buy a fraction of a fraction removes the entry barrier and allows an investor to better diversify their risk across multiple positions, and greater choice/access to securities.

Fractional shares have been available in ISA’s for years, the main issue is HMRC.

In addition, funds are allowed, and you can buy a fractional share of a fund, which in turn gives you a fractional share of the funds assets.

I’m not a legal person, but it doesn’t make sense why it could be OK in one instance, but not the other.

10

I understand what fractional shares are, but the linked web page seems to clearly imply that fractional shares are not allowed in an ISA

11

Does anyone know if interest on uninvested cash in the S&S ISA is added to that account or sent to the investment account? Thank you.

12

It sits inside the wrapper like everything does. Anything else would be stupid.

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13

Yeah, I know, only seeking clarity as I just couldn’t tell if my balance had gone up in the S&S ISA.

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14

For the original question, I have a different suggestion :slight_smile: if you have the means to save a lot of money annually. There are a lot of “ifs” in these suggestions tho.

  1. Keep some sort of “emergency fund” in your invest account that can be roughly: 1 year of minimum cost of living (mortgage + bills + food) after that I recommend not using the invest account (or any other account outside tax wrappers) at all.

    • Cost of living and pain thresholds differ for everyone. Can I live on tesco branded beans and not monmouth? decisions… decisions…

  2. invest 24K into SIPP (which is the sweet spot for tax savings)

    • If you are making more than 106K annually and don’t need it immediately that year, use salary sacrifice to decrease your pre-tax salary to under 106K by contributing to a workplace pension

  3. If you still have funds for saving, invest up to 20K into your ISA

  4. If you still have excess funds keep investing into your SIPP after this point.

    • if you don’t have enough funds to fill 24K + 20K values I recommend prioritising your SIPP first.
    • if you are close to your retirement and/or if you want to retire several years before the age of 57 you may prioritise your ISA first. (as long as you have a sizable SIPP already)
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15

106k is an odd figure. Over 100k and you instantly lose out for thousands of childcare benefits. You’re also in the (effective) 62% tax band. Contributing more to a workplace pension to get under that is a reasonable plan.

16

Personal circumstances differ for sure, For instance I don’t have CCB. Over 100K income you start loosing your tax free allowance (loose 1£ for every 2£s earned above 100K) If you have contributed 24K to sipp this starts at 106K

I don’t know what this is, if you are making 106K and used no form of tax saving method at all, you’ll pay 31K tax and 4.1K NI

But all in all yes, getting your pre-tax salary under 100K via salary sacrifice has many tax saving benefits.