Self−select ISAs

Managing your own investment strategy

A self−select individual savings account lets you choose between funds and individual shares, allowing you the flexibility to manage your own unique investment strategy. There are a wide range of options on offer so make sure you pick an ISA that suits your needs. There are basic fund ISAs, ISAs to suit long−term investors and ISAs to suit frequent traders.

If you have existing ISAs and old personal equity plans, it may make sense to switch them to a self−select ISA. This consolidation would allow you to rebalance your holdings and consider your overall asset allocation, as well as potentially cutting costs.

You could use a full self−select ISA to hold individual shares and investment trusts, as well as open−ended funds.

Shares listed on recognised international stockmarkets are eligible, as well as shares listed on the London Stock Exchange, but shares which are only traded on the Alternative Investment Market cannot be held.

Exchange−traded funds (ETF) can also be held in self−select ISAs. ETFs are tradeable low−cost tracker funds, which are exempt from stamp duty.

Individual bonds and gilts (UK government bonds) can also be held in self−select ISAs. There is a tax advantage to holding bonds in an ISA (individually or through funds), as interest is paid out gross, whereas equity dividends are paid net of 10 per cent basic rate tax, which cannot be reclaimed in an ISA.

To be suitable candidates for an ISA, bonds need to be investment−grade and have more than five years to reach their maturity at the time of purchase.

It is worth checking the rate of interest a self−select ISA provider pays on cash. You can switch your ISA into cash for a while, thus avoiding volatile markets, although you are not allowed to hold cash indefinitely and interest received suffers a 20 per cent penalty tax.

Shares gained through save as you earn schemes can be transferred into ISAs, protecting them from capital gains tax.

You have up to 90 days to shelter them in an ISA so it could make sense to delay the exercise of options until near the end of the tax year in order to make use of two years’Â ISA allowances (this would be four years, of course, if you have a spouse or civil partner).

Levels and bases of, and reliefs from, taxation are subject to change.