Stocks and shares ISA's - how do they work?

[pensionsums]

I've never had one and can't quite figure out how they work. Do you put cash in them, and it's used to invest in shares? So you could lose your capital?

Also, if you have existing shares (I have some in Nat West, I accrued when I worked there), can you put those in an ISA? They have tanked in value so there will be capital gains tax to pay when I sell them.

Any advice welcome!

Yes you transfer cash into the ISA account and then use it to buy shares or funds. There are 2 choices to make. 1st you need to decide on an ISA provider and then you need to decide on the investment. Some providers make this easy by providing ready made funds with certain characteristics.

If you are a new investor I would go for something simple.

The longer you want to leave the money invested the more adventurous you can be with your choice of investment.

Higher risk leads to potentially higher return but you have to be prepared to leave things alone if there is a dip.

I don't think you can move shares into an ISA without selling and rebuying within the ISA which would crystallise any gains for CGT.

LivLuna thanks for replying.

So if the markets crashed, am I correct that you could lose some of your capital?

Also, would you move existing shares you have into an ISA? Bear in mind they are worth much less now than when I bought them, so no CGT to pay when I sell them.

Yes, with stocks and shares you can loose capital. That's why it's suggested you invest for a long time, so that you can ride out any bumps in the market.

You can reduce risk by investing in a broad global fund that includes shares in loads of different companies.

You can transfer an existing portfolio to another provider/platform.

Yes, you can lose capital. But some funds are set up to appeal to the conservative (i.e. risk-averse) investor - it sounds like you are one. So keep an eye out for these. They might invest more heavily in bonds, for example, which are less likely to tank in a market crash, or low-volatility stocks.

With all the uncertainty around Trump's new term, now might not be the best time to invest. But then, I've felt that about many points in time over the past 15-odd years, and it's usually turned out all right!

But I'm presuming that there is no point in moving shares in to an ISA, if there's no CGT due when you sell them (the are worth less than when I bought them).

I am 100% risk averse. I lost a lot when NWB tanked. Never again!

Sounds like stocks and shares maybe not for you then? Maybe a cash isa or premium bonds would be more suitable.

If you move them into a ISA now then you can crystallise the capital loss to use against future capital gains.

Shares in an ISA will have no CGT on any gain when you cash them in in the future.

Whether you actually want to do this is up to you. But basically the S&S ISA is just a tax free wrapping so dividends and capital gains are not taxed. You could have the same investments in a regular trading account and they could perform the same, but you would be subject to tax

If you’re risk averse then don’t do something with capital at risk. You need a savings account

If you’re 100% risk adverse then do not invest in anything stocks and shares related. Put your money in a regular cash ISA, high interest account or premium bond.

No S&S investment is completely risk free. The value will go up and down over the years. Usually the trend is upwards and higher growth than interest rates on bank funds, but this is absolutely not guaranteed

@pensionsums I would avoid investing in individual stocks unless you want to be an active trader, so in your position I’d sell the NatWest shares and put the cash in your ISA wrapper and use it buy funds which are baskets of stocks and shares. These are either actively managed which means there is a manager who chooses which stocks to hold based on the fund description ( eg Global Tech, European income, US Growth) and tries to outperform an associated index, or passively managed in that they just track an index ( eg Uk tracker would be a basket of shares that represents the FTSE All share or similar). The management fees on trackers tend to be lower as they are just computer traded. There are also hedge funds which tend to hold fewer stocks, can employ more aggressive investment tactics like shorting and aim to generate a return even if the overall market falls but these are not suitable for you based on what you’ve said- higher risk.

However, as pp have said, you might want to look at bond funds as these are less risky than equity funds (albeit lower log term returns). Same principle in that they hold a basket of different bonds according to the fund criteria.

There are also funds that combine bonds and stocks to meet investor risk appetite.

personally, for me I invest my ISA allowance in 3 different equity funds and one fixed income. For the dc I put it all in a global tracker with a really low fee as their investment horizons are so long.

My provider is Fidelity but others include Hargreaves Lansdowne and Vanguard.

You can't just move shares you already own in to an ISA - you will need to sell them, and re-buy within an ISA. In which case - if you think the shares will not increase significantly in value, you might consider buying an alternative investment instead such as an investment fund.

If you are truly risk averse, then cashing in the shares now and putting the money into a cash ISA is an option.

If you do nothing and the value of the shares goes up - you may end up paying CGT (still a better position than you're in now!). You must have held them for at least a decade if they're lower now than when you got them (especially if it was at a Sharesave option price). So it really is a question of, do you think the price will recover to a point you are happy with - in which case hang on to them - or not (or if you need the money), then sell & either take the money or invest in something you have more confidence in (within an ISA wrapper).

https://www.moneysavingexpert.com/savings/stocks-shares-isas/

Better to keep your money in a cash ISA
You will sleep better at night.
You can get over 5% at the moment- check moneysavingexpert.co.uk for details

If you have a workplace pension, you could also increase your payments into that. That will be invested in the stock market for the long term, and investing every month helps ride out the stock market dips - look up pound cost averaging for more info

Picking individual shares is very difficult and the professionals don’t always do a good job of it. It also costs money to buy them and money to sell them, so the achieving 5% a year after costs is not at all easy. A cash ISA would be much better if you are risk averse.

Thanks everyone, this has been very helpful. I think I am going to stick with cash ISA's and NS&I. I know my returns won't be as good, but I really don't fancy losing any more capital. I've lost about £35k off the value of the NWB shares. It scares me!!