Where should I buy my shares?
Although the typical cost of buying a share online is around the £10 mark, some providers are cutting costs right to the bone, with iWeb charging as little as £5 a trade. Many services will discount rates further for frequent traders, however these usually only stand to benefit day traders.
However if you are already invested in funds via a stocks and shares Isa and have made contributions in the current tax year, your choice will be confined to your current fund platform if you want your shareholdings to be sheltered from tax too.
This may not be a massive issue for basic rate taxpayers, who pay the same income tax on dividends irrespective of whether or not their money is held in an Isa or not. However there is an argument for keeping all of your investments sheltered from tax, as further down the line the issue of capital gains tax might rear its ugly head. In addition you won't need to worry about declaring any of the income your shares generate on your tax return if they are in an Isa.
Most fund supermarkets also offer low-cost sharedealing services – the most notable exception being the Fidelity fund supermarket. Best Invest charges £7.50 per trade, Interactive £10, while Hargreaves Lansdown charges £11.95 (see table below).
Don't forget though that if your platform charges a percentage based account fee, this will also apply to your shareholdings too. So while a £5,000 trade with Hargreaves Lansdown costs £11.95, the 0.45% account fee will add another £22.50 to your annual costs. The larger your portfolio, the more significant these charges become.
This will not be such an issue with platforms charging flat fees, because running costs remain the same however much you invest. Interactive Investor, for example, charges £20 a quarter, which includes two free trades. That said, flat fee platforms do tend to be less competitive overall for investors with smaller portfolios.
In an ideal world you'll have factored sharedealing costs into the equation when you chose your fund supermarket but if your decision to buy shares is only a recent one you'll have to consider how much your shareholdings are adding to your overall portfolio costs.
It may be that you can lower your costs by transferring your portfolio to a different platform that better suits your investing habits. Watch out for exit fees though and consider what impact they will have on the overall benefits of switching.
If you are only looking for a service that allows you to buy and sell shares, the good news is costs are much easier to compare than fund platforms. Your choice may be led by dealing costs, but it is worth considering other factors such as ease of use, research and stock-selection tools, which can be particularly helpful with those who are new to sharedealing.
|Platform/Broker||Shares Dealing Fee||Shares Annual fee||Funds?||Fund Annual Fee||Notes|
|iWeb||£5.00||Nil||Yes||Nil||Initial £25 setup charge. Dealing fee applies to funds too|
|Interactive Investor||£10.00||£80.00||Yes||Included within £80||Annual fee includes 8 trades. Dealing fee applies to funds too. Dealing fee £5 on trades above first 10 per month|
|Halifax Sharedealing||£12.50||£12.50||Yes||Included within £12.50||Dealing fee applies to funds too|
|Alliance Trust Savings||£12.50||£90.00||Yes||Included within £90||Dealing fee applies to funds too|
|Charles Stanley Direct||£10.00||0.25%||Yes||0.25%||Shares annual fee capped at £150 and waived if more than 6 trades every 6 months|
|Hargreaves Lansdown||£11.95||0.45%||Yes||0.45%||Shares annual fee capped at £45. Dealing fee reduces depending on number of deals in previous month, minimum £5.95 on 20+ deals|
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.