Should you invest using a Stocks & Shares ISA or a GIA?

19 August 2021 | Posted by Frankie Jones
Two arrows in forest

If you want to invest, you can’t just use your ordinary bank account. You need to set up an account specifically designed for investing. The two main types of investment accounts are ISAs and GIAs. So should you invest using an ISA or GIA? Well, both have their pros and cons, which we’ll dig into here.

What is an ISA?

An ISA is an Individual Savings Account. It allows you to save or invest money in a tax-efficient way. You can contribute up to £20,000 per year (for the tax year 2021/2022) into ISAs and you won’t pay any capital gains or dividends tax. 

The main types of ISA are:

Cash ISA: for saving, in cash, like the name suggests

Stocks & Shares ISA: for investing

Junior ISA (JISA): for saving or investing for your child’s future

Lifetime ISA (LISA): for buying your first home, or retirement

You can split your ISA allowance across all the different types of ISA (subject to individual limits), as long as you don’t contribute more than £20,000 in total each tax year.

To learn more about the different types of ISAs, read our simple guide to ISAs.

What is a Stocks & Shares ISA?

A Stocks & Shares ISA is a type of ISA used for investing in stocks and shares (as the name suggests). In this account, you can hold a range of investment assets such as shares, funds, bonds, and cash. 

Pros of a Stocks and Shares ISA:

  1. You won’t pay tax on any returns you make.
  2. Stocks and Shares ISAs tend to deliver higher returns than Cash ISAs over long periods of time (as the stock market usually outperforms cash in the long term).
  3. Transfer your ISA if your goals change or you want your money in one, easy-to-manage place.
  4. You can pass on an ISA to a spouse or family member when you die and they’ll get income and Capital Gains Tax (CGT) benefits.

Cons of a Stocks and Shares ISA:

  1. You can expect to pay a fee to your ISA provider for managing your investments.
  2. Stocks and Shares ISAs can be more complex than Cash ISAs as they need monitoring.

What is a GIA?

A GIA is a General Investment Account. It’s a simple way of investing once you’ve reached your annual ISA allowance. 

Like a Stocks and Shares ISA, you can hold a range of assets in a GIA, such as shares, funds, bonds and cash.

Unlike a Stocks & Shares ISA, you will pay capital gains tax and dividends tax. You’ll pay capital gains tax on any profit you make above your annual allowance (which is £12,300 for the 2021/22 tax year). You’ll pay dividends tax on any income you get above the £2,000 annual allowance

Pros of a GIA:

  1. Contribute as much as you want – there’s no limit. 
  2. Open as many as you like. 
  3. You won’t pay dividend tax on any income you receive under the £2,000 annual allowance. 
  4. You won’t need to pay capital gains tax on any profit you make under the £12,300 threshold (but this does include any profit you make in the tax year, for instance, if you own a business or have a second home).

Cons of a GIA:

  1. Unlike an ISA, you’ll pay capital gains and dividends tax if you go above your allowance
  2. GIAs usually count as part of your estate when calculating inheritance tax (IHT) 

With both the ISA and the GIA – as with all investing – the value of your investments can rise and fall. It’s best to invest with a long-term horizon (ideally a minimum of 3 years).

Which is right for you: ISA or GIA?

Deciding between an ISA or GIA? With both, you can invest in pretty much anything. Ultimately, it makes sense to use your tax-free ISA allowance before you invest using a GIA. 

If you feel ready to invest, don’t forget to follow our 10 golden rules to maximise the benefits of growing your money.

If you’re still not sure where you want to invest your money, why not speak to a Financial Coach? At Claro, our expert in-house coaches are trained to help you understand your financial situation and build a plan to reach your goals. They can clearly explain your options and suggest investments you might not even have considered.

To arrange a 45-minute session with a Financial Coach, simply download the Claro Money app, create an account and follow the steps to book your call.

If you decide to invest, remember that your capital is at risk.

Tax treatment depends on your individual circumstances and may change in the future.

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