Don't pay tax on your investments

By holding your investments within a stock and shares Isa you are able to shelter your money from capital gains tax and if you are a higher rate taxpayer you can reduce the income tax you pay on dividend income.

For basic rate taxpayers this is taxed at 10% whether your money is in an Isa or not, but higher and additional rate tax payers will have to pay an extra 22.5% or 27.5% on this income if their money isn't held in an Isa.

When you buy your funds, your fund supermarket will give you the opportunity to hold your investments within this tax-efficient wrapper. In the 2014/15 tax year you can invest £15,000 in a stocks and shares Isa.

Each Isa allowance is individual – you can't have joint accounts - so that means couples can shelter double that allowance. So only individuals saving more than £15,000 a year, or couples putting away more than £30,000 in the 2014/15 tax year need to worry about tax.

For basic rate taxpayers there may not be much incentive to hold your money in an Isa, but even if you don't expect to pay capital gains tax, you never know what the future holds – you may end up with more to invest over time and your portfolio could grow faster than expected.

Without an Isa you would need to sell your holdings gradually to avoid paying the tax (the 2014/15 capital gains allowance is £11,000). In addition Isas are more convenient as you do not have to declare any income you earn from them on your tax return.

If you are saving for your retirement, and are confident that you will not need to access your money until that time, you might decide to hold your money in a self-invested personal pension or Sipp.

Unlike Isas you may have to pay tax on pension income it eventually generates (if it exceeds your personal allowance at the time) but you do get the benefit of tax relief on your contributions. This is based on your own rate of income tax and effectively means that it only costs a basic rate taxpayer £80 to invest £100, while higher rate taxpayers only pay £60.

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