Break the ISA with a self-select plan

When choosing an ISA, don't be bound by the unit versus investment dilemma, make your own mix to match your budget, ethics and risk.

Most people will be using their individual savings account (ISA) allowance to invest tax-free in stocks and shares using a unit trust or investment trust. But more serious investors may find a more proactive way of choosing their ISA is through a self-select plan. These are bought through stockbrokers and give you much greater freedom to invest in a mixture of equities, including ordinary shares, corporate bonds and gilts, as well as unit trusts and investment trusts. Wealthier investors use self-select ISAs to protect part of their portfolio from the taxman. They are particularly useful for holding shares paying generous levels of income, or that are likely to shoot up in value.

Most people will be using their individual savings account (ISA) allowance to invest tax-free in stocks and shares using a unit trust or investment trust. But more serious investors may find a more proactive way of choosing their ISA is through a self-select plan. These are bought through stockbrokers and give you much greater freedom to invest in a mixture of equities, including ordinary shares, corporate bonds and gilts, as well as unit trusts and investment trusts. Wealthier investors use self-select ISAs to protect part of their portfolio from the taxman. They are particularly useful for holding shares paying generous levels of income, or that are likely to shoot up in value.

"These are definitely for the more serious investor," says Sue Whitbread, associate director of Chartwell Investment Management. "You can choose from the full range of qualifying funds to put together your portfolio. This could prove very difficult for inexperienced investors."

With most self-select ISAs the provider offers the basic plan framework and handles the administration and dealing. The rest is up to you. This gives you the freedom to make your own investment decisions according to personal criteria such as risk, ethics and budget. But if your chosen shares go belly up, you have nobody to blame but yourself.

If you are not totally confident in your own stock picking skills you can buy an advisory self-select ISA where a manager gives advice on what to buy and sell. The final decision will still be yours. Charges will be higher for an advisory service than for pure self-select ISAs. Some companies, including Chartwell, provide a self-select ISA on what is called a discretionary basis - the manager buys and sells the shares and trusts on your behalf. You have no input on the individual deals.

"The advantage is that you can build up a fund with maximum diversification, rather than being restricted each year to funds offered by a single manager," says Whitbread. The Chartwell plan has a dealing charge of 0.5% with a £30 minimum, and an annual management charge of 1.25%. Doing all the buying and selling yourself can get expensive. If you plan to set up a self-select ISA, you should compare charges carefully.

A handful of stockbrokers impose initial charges, but most charge an annual management fee for the ISA administration plus dealing charges. ISA management charges range from 0.5% to 1%, so charges mount as your portfolio grows. In time these may reduce the benefits of using a self-select ISA.

As with all ISAs, the main benefit is that you pay no income tax or capital gains tax on your investments. This is of greatest benefit to wealthy investors who may easily exceed their annual capital gains tax allowance, currently £7,100.

But if your capital gain from shares remains below that annual threshold, you will pay no further tax even on shares held outside an ISA. So it may not be worth paying the extra ISA administration charges.

Dealing charges on self-select ISAs vary from between 0.5% and 2%, falling the greater the amount you trade. The typical minimum charge is £15, while the maximum will range from £40 to £150.

NatWest Stockbrokers charges an annual administration fee of 0.5% on the first £20,000 under management within its self-select ISA, which falls to 0.4% for the next £20,000 and 0.3% thereafter, with a maximum charge of £275.

Trading costs on the plan are 1.25% per deal, with a minimum charge of £15 and maximum of £150.

You should examine stockbroker charges to find a structure that suits the way you plan to use your self-select ISA. "If you will be making a lot of changes to your portfolio, it is better to pay a reasonably high annual management charge in return for lower dealing costs," says Peter Hargreaves, chief executive of Hargreaves Lansdown. "If you will not be making so many changes then look for a low annual fee."

Hargreaves Lansdown offers an execution-only self-select ISA, including internet dealing. It has no annual management fee, and no charges for buying unit trusts. Share dealing charges are 0.5% with a £15 minimum per trade.

Hargreaves says money going into self-select ISAs is currently heading all one way. "There are only three popular ISAs this year -- technology, technology and technology. Everything else pales into insignificance."

Self-select ISA investors are both investing in individual companies and pooled technology funds such as Aberdeen Technology, Jupiter Technology and Framlington NetNet.

Elissa Bayer, head of London private clients at Greig Middleton, says investors in self-select ISAs are more willing to take investment risks than those who previously invested in PEPs. Again, technology is the driving force. "If you are lucky to double your money your £7,000 allowance will be worth £14,000, which can start to look quite attractive."

A final word of warning: if you are hoping to set up a self-select ISA this year, start as soon as possible, says Sue Whitbread.

"Stockbrokers and ISA managers do not make a lot of money from self-select ISAs. Your call goes to the back of the queue. Many people can wait on the telephone for up to 40 minutes just to get hold of a dealer. You can end up tearing your hair out," she says.

The charge for technology has compounded the problem. "Stockbrokers are being swamped. You have to ask yourself whether there is time to set up a self-select ISA before 5 April."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
A nearly completed RoboThespian robot inside the Engineered Arts workshop is tested in Penryn, England. The Cornish company, operating from an industrial unit near Falmouth, is the world's only maker of commercially available life sized humanoid robots
techSuper-intelligent robots could decide destroying the human race is the kindest thing to do
News
The current recommendation from Britain's Chief Medical Officer, is that people refrain from drinking on at least two days a week
food + drinkTheory is that hangovers are caused by methanol poisoning
Life and Style
techConcept would see planes coated in layer of micro-sensors and able to sense wear and tear
News
Patrick Stewart in the classiest ice bucket to date
people
PROMOTED VIDEO
News
newsComedian Lee Hurst started trend with first tweet using the hashtag
News
scienceExcitement from alien hunters at 'evidence' of extraterrestrial life
News
newsRyan Crighton goes in search of the capo dei capi
Life and Style
Customers can get their caffeine fix on the move
food + drink
Extras
indybest

Arts and Entertainment
Actors front row from left, Jared Leto, Jennifer Lawrence, Meryl Streep, Ellen DeGeneres, Bradley Cooper, Peter Nyongío Jr., and, second row, from left, Channing Tatum, Julia Roberts, Kevin Spacey, Brad Pitt, Lupita Nyongío and Angelina Jolie as they pose for a
film
Sport
sport
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Software Developer (Java /C# Programmer)- London

    £30000 - £45000 per annum: Harrington Starr: A global investment management fi...

    Senior Network Engineer-(CCIE, CCNP, Cisco, London)

    £65000 - £75000 per annum: Harrington Starr: Senior Network Engineer-(CCIE, CC...

    Senior Network Analyst - (CCIE, Cisco, CISSP)

    £70000 - £80000 per annum: Harrington Starr: Senior Network Analyst - (CCIE, C...

    Senior Network Engineer-(Design, Implementation, CCIE)

    £60000 - £80000 per annum: Harrington Starr: Senior Network Engineer-(Design, ...

    Day In a Page

    All this talk of an ‘apocalyptic’ threat is simply childish

    Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

    Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
    Mafia Dons: is the Camorra in control of the Granite City?

    Mafia Dons: is the Camorra in control of the Granite City?

    So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
    Emmys look set to overhaul the Oscars as Hollywood’s prize draw

    Emmys look set to overhaul the Oscars as Hollywood’s prize draw

    Once the poor relation, the awards show now has the top stars and boasts the best drama
    What happens to African migrants once they land in Italy during the summer?

    What happens to migrants once they land in Italy?

    Memphis Barker follows their trail through southern Europe
    French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

    French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

    The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
    Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

    Frank Mugisha: 'Coming out was a gradual process '

    Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
    Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

    Radio 1’s new top ten

    The ‘vloggers’ signed up to find twentysomething audience
    David Abraham: Big ideas for the small screen

    David Abraham: Big ideas for the small screen

    A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
    Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

    Florence Knight's perfect picnic

    Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
    Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

    Horst P Horst comes to the V&A

    The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
    Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

    Mark Hix's summery soups

    Soup isn’t just about comforting broths and steaming hot bowls...
    Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

    Tim Sherwood column

    I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
    Eden Hazard: Young, gifted... not yet perfect

    Eden Hazard: Young, gifted... not yet perfect

    Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
    Tim Howard: I’m an old dog. I don’t get too excited

    Tim Howard: I’m an old dog. I don’t get too excited

    The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
    Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

    Tom Peck on Match of the Day at 50

    The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition