Can someone explain to me the difference between the two. I understand the ISA is tax free, can you explain the tax implications of the Invest accounts, for the UK.
All ISA investments are tax free so you pay no tax on dividends or capital gains. Without the ISA wrapper you’d pay tax if your dividends or capital gains were over the allowances. Capital gains tax is only payable when you sell the asset so for many people you can limit that enough each year to avoid having to pay any tax on gains. You can also offset capital losses against gains.
Ok understood, so there is no reason I should start investing from an ISA, right?
Secondly, There is a £20,000 limit per tax year (this year atleast). Does that mean I can put a max of £20,000 into the account to invest or does it mean my portfolio can’t exceed £20,000 in value.
Thirdly, day I max my isa, and put £20,000, what happens The next tax Year, does that £20,000 (assuming 0% growth in the portfolio) remain and I can add another £20,000
Please read my reply, forgot to reply to you
£20k is max you can put in, doesn’t matter what the value does after that. Next tax year is completely separate and another £20k can be invested. Hope that’s clear.
Not sure what you mean about no reason you should start investing from an ISA.
So there is an Invest account and an ISA account in trading212. So there is no benefit in using a trading212 invest account right?
So the next year when I add another £20k, does that merge with my previous years portfolio
The only time you should use an invest account is if you exceed 20k investment in a given tax year?
ISA is good as it protects your earnings from Tax, so if you are eligible, it makes sense to start your investing in the ISA and then use the Invest account once you have reached your yearly deposit limit for the ISA but still have more funds you wish to invest with.
Alternatively, not everyone has access to the ISA account and so Invest is the normal account to go with for these people.
The tax year changes on April 5th, so if you deposit the full £20k now, on April 6th you can deposit another £20k as the yearly limit will be reset. there is no restriction to how much money you can have inside your portfolio, only how much you can put in. do note that if you take any money out, this will not lower your deposit amount, so if you deposit and withdraw £2k ten times, you will have used up your yearly deposit limit.
Depends on circumstances but generally if an ISA is enough to hold your investments for the year and the platform offers the shares etc you want to invest in that should be enough. That also assumes you don’t need to take money out - rules used to be that the maximum was how much you could put in in total and withdrawing money didn’t mean it wasn’t still part of that total. Not sure if rules have changed there. No idea how T212 handles ISA follow on. It may all appear as one account or may be subdivided into tax years. Someone else would have to answer that.
Okay, finally (sorry for all the question, just want to make sure I’m crystal clear with the system)
Say if buy a share in the ISA, then sell it, does that cash contribute to my annual £20k deposit. Same for my dividends.
So if I earn dividends from a share does that contribute to my £20k deposit limit.
No they do not contribute to your annual £20k.
Only money you put in counts towards the limit. Any growth, dividends, cash from sales is all just held within the ISA. Cash won’t earn any income, it’s there to be withdrawn or reinvested. So as long as you don’t withdraw cash or dividends and then reinvest they have nothing to do with money going in.
It wouldn’t make sense to include dividends in the 20k as you’re not in control of what your investments earn and could otherwise invest so much and exceed the limit when a special dividend was paid. The money is earned within the ISA, it is not money being added from outside the ISA which is what the 20k applies to.
Thank you to both of you, your replies have been extremely useful and informative.