The Individual Savings Account (ISA) is a powerful tool that can help me bolster my long-term returns.
There are two I can choose from: the Stocks and Shares ISA and the Lifetime ISA. Both give me the opportunity to create wealth and shield it from the eroding effect of capital gains tax (CGT) and dividend tax.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Sure, these products place more restrictions on me than a General Investment Account (GIA). There are annual allowances, and the Lifetime ISA have restrictions on when I can withdraw my funds, for instance.
However, for me, the benefits they offer me in tax savings far outweigh the drawbacks. And with the Lifetime ISA, I get a handy cash injection by receiving tax relief, too.
More pain to come?
The importance of these tax wrappers is growing, too, as successive governments try to raise funds to fix the huge hole in public finances and boost investment in public services.
Dividend allowances — the amount investors can receive in dividends before tax is paid — has plummeted to just £500 a year.
Any dividends over this amount are charged at 8.75% for basic-rate taxpayers, and 33.75% and 39.35% for higher-rate and additional-rate taxpayers, respectively.
To add further strain on investors’ returns, the first Labour Budget for 15 years last week increased “the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24%.” The annual allowance is £3,000, but many investors could be in for a shock when they finally sell their shares.
The worry for individuals is that further tax raids may be on the horizon. The Institute for Fiscal Studies (IFS) reckons the government will have to raise another £9bn in taxes to avoid fresh cuts to public services.
So the first step on my investing journey would be to open a Stocks and Shares ISA and/or a Lifetime ISA.
Here’s what I’d do next
With my tax wrappers set up, I’d be ready to start filling them with shares, funds, and exchange-traded funds (ETFs).
What I buy would depend on my investment goals and my attitude to risk. These differ from person to person, so there’s no blueprint as to what my portfolio should look like
However, an important general rule is to diversify across a number of different stocks. This way, I spread risk by not putting “all my eggs in one basket.”
So if I was beginning my investing journey, I’d consider opening a position in the BlackRock Greater Europe Investment Trust (LSE: BRGE). With holdings in 35 different companies, it gives me excellent diversification straight off the bat.
Key holdings include Danish pharma giant Novo Nordisk, Dutch semiconductor manufacturer ASML, and French luxury goods maker LVMH.
As you can see from these holdings, the trust’s breakdown spreads my capital across different sectors and territories, too. This gives me exposure to different investment opportunities while reducing risk.
Unfortunately the ongoing charge here is somewhat high, at 0.98%. This can take a bigger bite out of my returns than other trusts.
But given the cheapness of European shares right now, I still think the trust could be worth it. It could deliver market-beating returns as investor appetite for stock market bargains accelerates.
The post Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth! appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]
A high-yield dividend ETF and an investment trust to consider this November!
2 of my favourite, cheap FTSE 100 growth shares this November!
Up 26%, can the BT share price really push higher still?
What are the best dividend shares to buy right now?
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML and Novo Nordisk. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
