Making use of tax wrappers such as ISA’s, LISA’s, SIPP’s or PEP’s is great and most likely steers you towards investing platforms with the cheapest fee’s.
Because of this many people overlook the positives of a general investment account (GIA) which although subject to capital gains tax still allows you to make gains of up to £12,300 before any tax is due.
One way to take advantage of this is if you are investing in smaller amounts platforms like Freetrade.io to invest in fee free a general investment account.
Using fee free investing platforms allows you to very cheaply make up to £12,300 in profits and £2000 in dividends before paying any tax!
Which is really great for those trying to invest in small amounts along side saving or people that want to have access to shares and funds not available on their current tax free wrapper platform such as RIET’s (Real estate investment trusts) or specific ETF’s (Exchange traded funds) you are looking for.
What this basically means is you could invest in smaller amounts either as a starting point or in addition to other investments and savings (Eg: you already pay into an ISA or have maxed it out) and pay minimal fees and ongoing charges to make your first £12,300 profit.
After which you might consider reaching for the calculator if you think you will surpass that £12,300 threshold then plan to transfer it over to a tax efficient wrapper account such as an ISA or a SIPP.
If you are looking for ideas of how to invest check out this post all about the difference between ESG and impact investing.
Freetrade charges no buying and selling fees and the only ongoing charges you pay would be based on any funds or shares you choose (external charges). So you pay 0.5% stamp duty on share UK purchases and a spot rate or 0.45% fx transfer fee if buying shares in a foreign currency then nothing else to the platform provider. This is WAY cheaper than the alternatives and a great way to increase your average returns.
It’s also worth pointing out that dividends are classed as income so any earned over the threshold of £2000 will count towards your income allowance of £12,570 and if above be taxed at basic rate (7.5%), higher rate (32.5%) or additional rate (38.1%) depending on current income tax level.
The Freetrade platform also allows you to buy fractional US shares which is great news for micro investors to build up a great portfolio of potentially more expensive shares.
If you happen to make some mad unexpected gains using this method you will obviously have to pay capital gains tax on it but if you think about it, making made unexpected gains if only investing in passive index tracker funds is unlikely so if it does happen and you end up paying tax on your gains, it is profit you would not otherwise have gained.
Just remember that its the GIA (general investment account) that has zero fees. If you opt for the ISA it currently has a £3 monthly fee which is a bit more than other platforms unless you hold over £8,000 (although they are also giving £25 to new ISA account as well as the free share). So be sure you understand the differences relative to the amount invested before getting going.
I’ll leave this with a small line form George S. Clason’s – The Richest Man In Babylon:
“Men (and women) of action are favoured by the goddess of good luck”
Finally you should obviously consider your own circumstances and take them into account before making any decision.
*Life Build Learning does not offer financial advise and intended for educational and reference purposes only. Use of this site is entirely at your own risk. You should always carry out your own research and take specific professional advice.
