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        Updated: April 06, 2024

        Different Types of Stocks and Shares ISAs

        There are several different types of investment ISA to suit all needs and appetites for risk. Find out how to choose the right option for you in our guide

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        Stocks and shares ISAs are tax-efficient investment accounts which offer UK residents the opportunity to invest over the medium to long-term (typically five years+) within a range of different types of investment funds and asset classes.

        In this article we take a closer look at how many of these different types of investments work so you can make a more informed choice as to which may be the most suitable option for your own stocks and shares ISA.

        What investment types can I hold?

        Investment ISAs can act as a tax-efficient wrapper for the following…

        • Individual stocks and shares
        • Unit Trusts and investment trusts
        • Exchange-traded funds (ETFs)
        • Open-ended investment companies (OEICs)
        • Corporate Bonds and UK Government gilts

        We’ll go on to outline each of these investment types in detail, but you can make an enquiry with us at any time to speak to an expert about them.

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        What are exchange-traded funds (ETFs) and how do they work?

        Exchange-traded funds (ETFs) are open-ended collective investment funds. ETFs operate in a very similar way to tracker funds whereby the key investment objective is to replicate the performance of a particular stock market index.

        In addition to being able to track the movement of a traditional index, such as the FTSE 100 or S&P 500, ETFs can also offer exposure to a host of alternative asset classes like:

        • Commodities (such as Gold, Oil and Pork Bellies)
        • Currency markets
        • Specific industry sectors (such as pharmaceuticals or technology)

        Passive investments such as ETFs are also particularly attractive as they are generally cheaper to run in comparison to actively managed funds. This saving can subsequently be passed on through lower initial charges and annual management fees.

        How are ETFs created?

        ETFs are created by either physically purchasing a basket of shares from within an index they intend to replicate or through more complex investment arrangements known as derivatives or ‘swap-based’ ETFs.

        How to trade ETFs

        Unlike tracker funds, ETFs are listed on a stock exchange which means they can be bought and sold during regular trading hours just like traditional shares. This makes them a very flexible, liquid investment class.

        Do ETFs pay dividends?

        Yes, it’s possible depending upon the type of shares held by the particular ETF – either income or accumulation. An ETF holding income shares will pay out dividends to the shareholders whereas ETFs holding accumulation shares will reinvest all of its dividend income, thus, causing the share price to increase.

        How do ETFs make money?

        Like all shares traded on an open exchange, ETFs make money when the unit price increases and when dividends are added to the fund. If you sell your holding when an ETF share price is higher than when you bought the funds, you will have made a profit.

        Any profits made from an ETF held within a stocks and shares ISA will be free of any income or capital gains tax.

        If you’d like to know more about how ETFs work and wish to consider the possibility of investing in this type of fund within a stocks and shares ISA, make an enquiry so we can arrange for an expert to get in touch.

        What is an OEIC fund and how do they work?

        Open-ended investment companies (OEICs) are actively managed collective investment funds. An OEIC fund manager uses money pooled together from lots of investors and buys shares across a diversified range of asset classes, in line with the fund’s main investment objective.

        OEIC funds vs. Unit Trusts

        OEICs are often compared with unit trusts as both types of investment funds share certain characteristics. Both are actively managed funds and pool money together from lots of different investors.

        The key difference between Unit Trusts and OEICs relates to how they’re priced. Unit Trusts operate on a dual pricing basis known as a ‘bid-offer spread’. The bid price of the fund is used when an investor is looking to sell and the offer price is quoted when an investor is looking to purchase units in the fund.

        OEICs are run as companies and, therefore, only quote one single share price regardless of whether an investor is looking to buy or sell a holding within the fund. The value of your shareholding can rise or fall depending on the value of the fund’s underlying assets.

        Are the gains from an OEIC fund free of tax within a stocks and shares ISA?

        Yes they are. Whatever profit you make from the sale of any OEIC funds held within an ISA wrapper are free of capital gains tax.

        If you’d like to know more about how OEIC funds work get in touch or give us a call on 0808 189 0463 and we will ask an advisor we work with to contact you directly.

        What are gilts and how do they work?

        When you buy a gilt you are, in effect, lending money to a government (whereas in the case of corporate bonds you’re lending money to a business).

        Gilts are more formally known as fixed-interest securities and are issued by the UK government whenever it needs to raise money. In return, the government will pay an investor a regular income or interest (known as a coupon). At the end of the term of the loan the money is repaid.

        The amount of interest paid will generally be higher for longer terms. So, for example 15 year gilts will pay higher interest than either 10 or five-year gilts as the investor has to wait longer for their original capital to be repaid.

        Investing in UK gilts would generally be seen as a fairly low risk investment as the UK government is providing security for the loan. They are often used to provide a balance between cash deposits and share-based funds within an investment portfolio.

        How to buy gilts

        Individual gilts are available to purchase through the UK government’s debt management office. However, for the purpose of a stocks and shares ISA, investors can access actively managed investment funds which would specialise in this type of asset class.

        If you’re interested in using gilts within a stocks and shares ISA make an enquiry and we can arrange for an advisor we work with to get in touch and discuss your requirements in more detail.

        What are ethical stocks and shares ISAs?

        Ethical stocks and shares ISAs are specifically designed for someone who would prefer to invest in companies which regularly promote strong environmental and social practices such as charity groups or social enterprises.

        How to compare the best ethical stocks and shares ISAs

        If you want a general idea of who offers the best ethical stocks and shares ISAs you can search through various comparison websites online. Alternatively, if you’d prefer to speak with an experienced advisor who would be able to help you identify the right type of ISA investment for your specific requirements and guide you through the purchasing process, this is where we can help.

        If you get in touch we can arrange for an expert to contact you and discuss these requirements in more detail.

        Can you use stocks and shares for Lifetime ISAs?

        Yes you’re allowed to invest in either cash or stocks and shares within a Lifetime ISA. 

        Lifetime ISAs (LISAs) are a relatively new addition to the ISA family (available since April 2017) and are specifically aimed at UK residents aged between 18-39 who may be saving for their first home or for retirement.

        For every £4 saved in a LISA the government will add a further £1 (up to a maximum of £1,000). The total annual ISA allowance is currently £20,000, however you can only save up to £4,000 into a LISA and still receive the 25% additional contribution.

        How can I find the best tracker fund stocks and shares ISAs?

        In addition to exchange-traded funds (ETFs), traditional tracker funds are still a popular option for people looking to invest within a stocks and shares ISA.

        However, there can be so many different options to choose from it can be difficult to know which one may be best suited for your own individual investment objectives.

        If you get in touch we can arrange for an advisor we work with to help you identify a tracker fund that best fits with your requirements.

        Speak to a financial expert

        As you can see, stocks and shares ISAs offer quite an extensive range of investment options. The advisors we work with can help you make the right choice to suit your own personal investment aims and objectives.

        All advice is free and any information is always given in the strictest confidence. Call us on 0808 189 0463 or make an enquiry to get started.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in ISAs. Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.