David Charles took advantage of the new stocks and shares Isa in 1999
David Charles is now a millionaire, thanks to the Isa.
By using his tax-free savings allowance every year for the past 20, the 62-year-old from Berkshire has amassed a fortune of £1.1 million.
Since the Nineties, David, who is married to Frances, 60, has used tax-free accounts to invest £250,000 in the stock market.
For five years before the launch of the Isa, he used Personal Equity Plans (Peps), a government-backed tax-free account allowing investors to buy shares in UK companies.
When the stocks and shares Isa replaced Peps in 1999, it became a vital tool in shielding David’s savings from punitive taxes.
On top of his initial £250,000, he has now earned £290,000 in dividends and £560,000 from lucrative investments.
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HOW THIS IS MONEY CAN HELP
How to choose the best (and cheapest) DIY investing Isa – and our pick of the platforms
David, an experienced investment banker, uses his annual tax-free allowance every year to purchase shares through investment platform AJ Bell.
He used to pick the shares himself, but now he leaves it to fund managers.
As a higher-rate taxpayer, without the shelter of the Isa’s tax-free status he would be liable to pay 32.5 per cent tax on the dividend income he earns and 20 per cent tax on any capital gains, after his allowances were taken into account.
David quickly caught the bug after watching his father manage his own savings and investments.
He says: ‘It got me thinking about saving, investing, capital growth and dividends and the importance of setting aside money for the big purchases, such as a house deposit.’
It is a mindset he is keen to pass on to his children, Piers, 21, and Tara, 19.
He says: ‘My daughter and son are both students, so they don’t pay tax, but I have already started them off with their own Isas.
‘My advice to people who may not be taxpayers at the moment, but think they will be at some point in the future, is not to wait.
‘Make use of your tax-free allowance now, because you will never get it back.’
If you are interested in becoming an investor, read our quick-start guide to DIY investing, and our round-up of the best and cheapest platforms you can use.
Investment platforms for easy stocks and shares Isa investing
The cheapest DIY investing platform depends on your investing plans, but for a starter stocks and shares Isa it may be best to go one that is easy to use and gives you a helping hand, writes Simon Lambert.
I’ve road tested these platforms and they deliver on those criteria.
With all of them the cheapest and easiest way to start investing will be in funds, which can be free or cheap to buy and sell.
My suggestions are Hargreaves Lansdown, AJ Bell YouInvest, Interactive Investor and Vanguard.
All offer best funds lists and/or ready-made portfolios.
Hargreaves Lansdown scores highly on being intuitive and easy to use. Finding and investing in funds is simple, as is setting up regular investments and checking up on what you have done. Its app is also very good. It’s not cheap, with a 0.45% annual fee but on smaller investment pots percentage charges should not be too high. Fund dealing is free.
AJ Bell is a more pared back experience but still simple to use. It has simple passive portfolios, a good best fund-finding tool and a cheaper 0.25% annual fee. Fund dealing costs £1.50.
Interactive Investor has a different charging model and costs £22.50 a quarter or £90 a year. That fee is given back in free trading credits, which you can use to pay to buy funds, shares, trusts and ETFs. The standard charge to buy or sell all those is £10, or £1 if you set up regular monthly investing. Interactive Investor is simple to use, and has good model portfolios.
A final more restrictive but simple and cheap option is Vanguard. The US giant has set up a UK investing platform but you can only buy its funds. It is cheap with a 0.15% per year fee and has no costs for buying and selling. You can use this to buy Vanguard’s simple and cheap passive funds, or its all in one LifeStrategy funds that invest in shares and bonds around the world.
Read our full round-up of the best investment platforms to compare charges across the other platforms available and to check the best one for you.