3 reasons why I’d buy UK shares in a Stocks and Shares ISA in 2021
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Buying UK shares through a Stocks and Shares ISA could be a logical move. An ISA offers tax efficiency versus a standard share-dealing account. It can also be opened online in a matter of minutes, while its fees are relatively low and affordable.
Of course, investing in the stock market through any type of account carries significant risks. Investors may experience losses in the short run and long run.
However, through taking a long-term view and diversifying, it may be possible to build a growing ISA portfolio over the coming years.
The tax efficiency of Stocks and Shares ISAs
Tax efficiency may not be a primary concern for all investors. But it could become increasingly important over the long run. As such, a Stocks and Shares ISA could be relatively appealing, since no tax is charged on any amounts invested or withdrawn. This contrasts with a regular share-dealing account. In that case, dividend tax and capital gains tax are both charged above their respective allowances.
Although in the short run those allowances may be sufficient for many investors, over the long run, the growth potential of the stock market means that they may be too low to avoid paying tax. This may result in lower net returns versus investing through an ISA.
Low costs of ISAs
Although many Stocks and Shares ISAs have management fees, in most cases they are unlikely to be prohibitively expensive for any investor. In fact, the annual administration charges of ISAs can be as little as the cost of one buy or sell trade. Given the tax advantages offered by ISAs, this may prove to be a price worth paying to potentially enjoy higher net returns in the long run.
ISAs also offer many of the same features as ordinary share-dealing accounts. Notably, regular investment services are widely available through ISAs. They help to reduce dealing costs and could make a positive impact on portfolio performance over the long run.
Ease of opening and withdrawals
Stocks and Shares ISAs are simple to open. They can be applied for online in a matter of minutes in many cases. This could make them accessible to a broad range of individuals.
Furthermore, ISAs offer greater flexibility than other forms of investment accounts. For example, withdrawals cannot be made from SIPPs before the age of 57. However, withdrawals can be made at any time from an ISA without penalty. This may make them more appealing to individuals who could require access to their investment funds prior to retirement. It could also help with budgeting. It may be easier to plan spending based on a withdrawal that is not subject to tax, which could be the case with a SIPP rather than an ISA.
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.