Why open a Stocks & Shares ISA now?

We take a look at why now is the time to act if you want to take advantage of the tax benefits of a Stocks and Shares ISA.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Dice engraved with the words buy and sell

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

You may already have a Cash ISA with your bank.

But did you know that you can hold all kinds of assets in an ISA? And pay no taxes on what you earn?

The potential here is enormous, because some assets – like stocks – could make you far higher sums over the long-term.

When you own a stock, you own a small piece of a business. A real, cash-producing asset that’s working for you day after day.

Hold it in a Stocks & Shares ISA. You can collect dividend payments tax free.

Or, if your shares rise in value, you can sell them and pay zero tax on capital gains.

[top_pitch]

How risky are stocks?

You might be averse to stocks because they’re “risky.”

Your shares can fall in value.

The business you’re holding could take a financial hit. Or even go bankrupt and disappear.

These are all valid fears.

However, you can help mitigate these risks by choosing strong companies with steady revenues.

Good examples are utility companies.

No matter what the economy’s doing, people need heat, electricity and water. So utility revenues are usually less vulnerable to recessions and market swings.

What’s more, their dividend yields are often generous. 4-6% is typical, though of course not guaranteed.

These payments alone are far higher than any interest you’d get in a Cash ISA.

[middle_pitch]

Don’t forget, cash also has risks

In fact, if you stuff cash under a mattress, you are virtually guaranteed to lose purchasing power.

Inflation is always eroding the value of your cash. Nowadays, it’s difficult to beat inflation with the interest from any savings account.

And today’s inflation is relatively low!

If you were around in the 1970s, you’ll know that inflation can really rip higher.

In 1975, inflation got as high as 24%. By 1980, the pound was worth almost 4 times less.

When inflation soars, cash and bonds are the absolute worst things to be holding. That’s why using a Stocks & Shares ISA to diversify your savings is generally a good idea.

Generous £20,000 ISA allowance each tax year

Right now, you can add up to £20,000 per year to your ISA.

This allowance is very generous. Most ordinary savers needn’t pay any tax on their investments.

You don’t have to report your ISA holdings to HMRC. This is a huge hidden benefit. As anyone with assets knows, filing your taxes can be almost as painful as paying them.

Your money isn’t tied up, either.

Virtually all stocks available in an ISA have a ready market of buyers and sellers. With a few clicks, your shares can be sold in seconds. The cash appears in your brokerage account, ready to withdraw.

Want to add more than £20,000 this year?

If so, you’ve all the more reason to act now.

The cut-off date for ISA deposits is midnight, April 5.

Suppose you had £40,000 to invest, and hadn’t used an ISA this year. You could add £20,000 to your Stocks & Shares ISA now. Then, from April 6, add the other £20,000.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »