Opening a Stocks and Shares ISA could improve your chances of making a million. Not only does it offer tax efficiency that could improve your net returns, a Stocks and Shares ISA is cheap to open and administer. It also provides a great deal of flexibility in terms of withdrawals relative to other products.
As such, now could be the right time to open an ISA. The stock market’s future may be highly uncertain at present following its recent crash. But through buying cheap shares and holding them for the long run in an ISA you could boost your chances of obtaining a seven-figure portfolio.
Stocks and Shares ISA tax efficiency
A Stocks and Shares ISA offers significant tax efficiency. There’s no tax levied on any amounts invested through an ISA. This means there’s no dividend tax on your income received from stocks, and no capital gains tax charged on your gains.
Some investors may feel they’re unlikely to generate a portfolio that’s large enough to require tax efficiency. However, over the long run, the returns available from investing in shares mean that you may generate an annual dividend income that is in excess of the £2,000 allowance. Likewise, your capital gains may amount to more than the £12,300 annual allowance.
As such, investing through a Stocks and Shares ISA from the very start could minimise your tax bill in the long run. And, with the cost of coronavirus likely to mean higher taxes, the amount you avoid paying could be relatively high.
The cost of opening a Stocks and Shares ISA is often zero. The cost to maintain it is often the same as the cost of one buy or sell trade per annum. As such, ISAs are a low-cost means of obtaining tax efficiency, which makes them accessible to almost all investors.
Compared to other tax-efficient accounts, such as a SIPP, Stocks and Shares ISAs may prove to be significantly cheaper to administer. Therefore, they may offer stronger return potential in the long run, as you pay a smaller portion of your asset values in fees.
A Stocks and Shares ISA also offers a significant amount of flexibility. You can only pay £20,000 into an ISA per annum, but can withdraw as much as you like without penalty.
This makes it a desirable means of capitalising on the growth prospects for the stock market across a wide range of individuals at different stages in their lives.
For example, someone who’s just starting their working life can invest through an ISA and use their capital should they wish to purchase a house. Likewise, a retiree may find an ISA much simpler when it comes to budgeting their income, since there are no taxes to pay on withdrawals.
Opening an ISA is a cheap, flexible and tax-efficient means of benefitting from the stock market’s growth prospects. With many shares currently cheap after the market crash, now could be the right time to start investing. And that could certainly increase your chances of making a million in the long run.
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.