April isn’t just a time for lambs, chicks and chocolate eggs – it also marks the start of a new tax year. From 6 April every year, your ISA allowance is reset, giving you a brand new £20,000 quota to invest tax free. March to May is therefore unofficially “ISA season”, and ISA providers set about ensuring that those with enough to save use their annual allowance before the clock strikes midnight on the following 5 April.
Stocks and shares ISAs are a type of investment account to use when saving up over the long term. They let you use your annual ISA allowance, which is the limit that you can save up to in each tax year without having to pay tax on your profits. Some providers will list their ISA as a separate account type, while others ask if you’d like an “ISA wrapper” on your investment account — these are exactly the same. An ISA is nothing more than a checkbox to say you’d like to use your tax-free allowance.
Capital gains tax is a tax you pay on profits you make over £3,000 in a tax year. The amount you pay depends on your other taxable income and your income tax band.
Dividend tax is a tax you pay on any dividends you receive over £500 in a tax year. Once again, the amount you pay depends on your income tax band.
We have full guides on both capital gains tax and dividend tax if you need to find out more. Limits can change each year and we’ve given those for 2024/2025.
With many providers, the cost of the ISA tax wrapper is free — you’ll get to choose between an ISA and a general investment account with your chosen provider, with the only difference often being the tax benefits. There are providers that charge you a monthly fee for holding your stocks in an ISA compared with a general investment account.
The investment charges depend on the platform you choose. Some people are tempted to choose the one that has the biggest list of features, stocks to invest in and tools, but beginner investors don’t use all of these features and tools, and most of the time they’re not interested in the more obscure stock exchanges, either. Choosing these platforms can end up costing you a lot more money. If you decide to take up a new hobby, you don’t usually dive into buying the most expensive equipment, you get a beginner’s kit and upgrade later if you need to.
We have a guide on investment fees if you want to know more about how much investing costs.
During March to May 2021, investment platform IG found that technology companies, cryptocurrency companies and biotech companies were the most popular types of stock to invest in with a particular lean towards US companies — some popular stocks included Airbnb, Tesla and Coinbase.
In the 2022/2023 tax year, the platform has seen a shift. UK investors have been choosing stocks closer to home, including UK-based energy, oil and gas companies, as well as banks. Sam Dickens, a portfolio manager at IG, suggests that this is due to the rise in inflation. The current surge in energy and fuel costs mean that these companies are potentially earning more money, making them attractive to investors, which he refers to as “owning the problem”.
One thing to think about is ‘owning the problem’. If inflation is high, then owning commodity producers – gold miners, for instance – could be a potentially good play.
”
Here’s the annual performance of the top 10 stocks that IG investors bought in ISA season 2021/2022.
The biggest winners of the year were Tesla, Apple and BP. The biggest losers were Coinbase, Palantir and Avacta Group.
Angry about spending a fortune filling up your car? If you have some money to invest, consider buying into fuel companies or into a greener investment option, such as electric vehicles. When you’re next astonished at your latest energy bill, consider buying stocks in the energy companies. Furious at your mortgage interest rates? Think about shares in a bank.
The idea of this strategy is that these companies are making additional income as a result of rising prices, which generally helps their stock price. They might also pay dividends to their shareholders.
Of course this isn’t a hack or a guaranteed win — there are other factors that impact stock prices, and people might equally be selling their stocks in protest, which could send the stock price the other way. Consider the ongoing crisis between Ukraine and Russia — many investors and fund managers are taking their investments out of Russian companies.
A slightly different way of owning the problem is by investing in companies that are finding solutions. For example, IG has noticed that investors are interested in clean energy investments, including the iShares Global Clean Energy ETF. This exchange-traded fund invests in clean energy companies, which is a great alternative to traditional oil and gas companies.
We asked Sam about his tips for someone looking to open their first ISA.
Sam suggested spreading the risk by diversifying your portfolio, which means splitting your money between lots of different investments. One way to do this is by choosing a ready-made portfolio, which many providers, including IG, offer. These let you invest in a whole bunch of sectors and investment types – it’s a bit like grabbing a fajita meal box from the supermarket rather than buying wraps, chicken, spices, salsa, guacamole and everything else that goes into a great Mexican night.
If ready-made isn’t your jam and you’d like a more active approach, you can choose some shares and create a portfolio. While you’re getting the hang of it, you could split your funds between a ready-made portfolio and your home-made one.
You could put some money into a ready-made portfolio, then see if you can beat that. If you do want to go at it alone then over a year you can compare your returns over the two accounts and see how you did.
”
Sam suggests reassessing your options every few months or so – you might need to rebalance or change your approach.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Use our dividend tax calculator to work out whether you need to pay tax on your dividend payouts and how much you’re liable for.
Find out how you can start building wealth by investing just £100 a month along with some of the best ways to invest.
Keen to set your child off to a good financial start in life? We explain a range of different investment options.
You don’t have to be rich to invest; here’s how to get started investing with little money, and investment options to consider.
We explain how after-hours stock trading works, what advantages it can offer, and what the risks are.
Investing in shares gives you the right to vote in important company decisions. Here are the key things you need to know about stock voting rights.
We take a look at stock market trading hours across the world and see if it’s possible to trade outside those hours.
Find out which platforms are offering free stocks and shares for new customers in the UK.
See our guide explaining how risky different types of investments are.
Find out what the Apple stocks app on the iPhone is, how to use it and what everything means. This guide breaks down all the complicated numbers.