From: Tom Anderson 
Newsgroups: uk.finance
Subject: Re: Simple investing questions - use an ISA, transfer costs?
Date: Wed, 23 Aug 2006 23:14:37 +0100

On Tue, 22 Aug 2006, James wrote:

> Is it worthwhile wrapping the non index linked shares in an ISA? There 
> seems to be a cost doing this, and I'm currently well within the basic 
> tax rate band.

AIUI, for equities, ISAs aren't such a great deal. You don't have to pay 
capital gains tax on an investment in an ISA, but then the threshold for 
CGT is pretty massive anyway - you're not going to get anywhere near it 
with the amounts your investing, so there's no practical benefit here. As 
for income tax, well, although you don't pay income tax on interest in a 
cash ISA, you do pay it on dividends in an equity ISA; the government 
weasel their way out of this with some argument about the tax being paid 
at the company's end, not the shareholder's, but it's basically a con. 
There is a small ray of sunlight - income tax on dividends is normally 10% 
for starting- and basic-rate taxpayers, and 32.5% for higher-rate 
taxpayers, but for dividends in an ISA, it's 10% regardless of income. 
However, since you're a basic-rate taxpayer, there's nothing in it for 
you.

Although i may have completely misunderstood the rules - someone will no 
doubt correct me if i have.

I have to say, the rules as they stand are completely bonkers - they mean 
that wealthy people with big investments benefit from no CGT and reduced 
income tax, whereas those of more meagre means, like you and me, get 
nothing. This seems to be completely arse about face.

Having said all that, all my investments are in ISAs anyway - even if 
there wasn't much of an upside, there didn't seem to be a downside. Plus, 
one of my funds had a special offer discount on the initial charge if you 
went through an ISA.

> Is it worthwhile investing only 1k in one companies shares?  I'm 
> expecting to hold onto the shares for at least a year.

Personally, when i was investing my life savings, i never even considered 
this, as i thought the risk of losing it all, or of only getting measly 
returns, was too great. Instead, i went for a fund, since this was likely 
to be safer than a single stock; Daytona of this parish pointed out that 
the class of funds known as income funds, which focus on stocks with high 
yields, are both lower risk and higher return than index trackers, so i 
went for one of those (the Invesco High Income fund, to be precise, which 
has indeed done very well over the last year).

However, i think investing it in one company (or a few) you've picked 
yourself would be rather good fun; if i wasn't looking at the grim 
prospect of having to put down a 30k deposit on a house in five to ten 
years time, i might have done it myself. When i started sorting out my 
investments last year, i decided to put half in cash, since it was 
absolutely(ish) safe, and half in the safer end of the market, since it 
was likely to grow more. I've since changed my mind a bit - i want a third 
properly safe in cash, a third in basically-safe-over-the-long-run tracker 
or income funds, and a third in ludicrously risky but glamorous gambles; 
so far, i'm into the Indian stockmarket for a grand, and Russian equities 
for two, both through JPMorgan funds. Yes, again these are funds with 
someone else doing the fun bit, but it's still more entertaining than a 
tracker or some stodgy UK fund.

Anyway, what i mean by all that is yes, maybe 1 or 1.5k rather than 2, and 
maybe in chunks of 500 or 250, so you spread the risk and get to play with 
more companies, but that sounds like a good idea.

tom

-- 
Gotta treat 'em mean to make 'em scream.