If you are a UK-resident and interested in self-directed investing, then a self-select ISA should be your first port of call, potentially even in front of any other stock broking or futures trading account. Self-select ISAs are a tax-free wrapper, into which you can invest £20,000 this financial year, completely tax free.

For most investors, your ISA allowance should be your first choice, and only after you have used that up should you think about other options. A self-select ISA will give you access to a wide range of international share markets, covering potentially over 9000 shares. You can buy and sell shares issued by companies on any recognised exchange in the world. You can also buy corporate bonds listed on recognised exchanges, and bonds issued by the UK government or Eurozone governments.

There are limitations, of course. You are restricted to funds with UK reporting status only. You CAN buy overseas funds, but only those which are considered to be ‘UK friendly’ by the FCA.

Most brokers should screen shares and funds in advance – if you can’t find them on your ISA trading platform, then it usually means they are not eligible for ISA investment.

There are a broad range of foreign companies listed on the London Stock Exchange (LSE) which you can buy for your self-select ISA. Just in the FTSE 100 you will find the likes of Antofagasta (LSE: ANTO), Bunzl (LSE : BNZL), Coca Cola (LSE: CCH), Randgold (LSE : RRS) and Smurfitt Kapp (LSE : SKG).

Beyond this, you also have access to listed investment trusts, investment funds and ETFs (exchange-traded funds). Between them they can provide access to a wider range of companies and sectors, including overseas companies, commercial property, commodities, currencies and infrastructure.

ETFs in your self-select ISA

ETFs are under-used by UK investors, but you can buy and sell them like a share and their fees are much, much lower than actively managed funds. They are designed to track an index as closely as possible.

Let’s say, for example, that you wanted to include a basket of the leading European companies in your self-select ISA, but you did not have any strong views on which European stocks to buy. One possibility would be to simply buy an ETF listed on the London Stock Exchange that tracks the EuroStoxx index. A good example is the Vanguard EuroStoxx 50 ETF (LSE: VX5E).

Be aware, however, that not all ETFs listed on the London Stock Exchange are denominated in sterling. Some are quoted in other currencies. Lyxor, for example, also has a EuroStoxx tracking ETF on the LSE, but this is denominated in US dollars.

ETFs are also a great way to gain exposure to commodity markets without venturing into commodity futures or financial spread betting. ETCs, or exchange-traded commodities, work just like ETFs, and most can be purchased for an ISA. For example, ETF Securities and iShares both offer ETCs that track the physical gold price. Similarly, ETF Securities also offers a number of benchmarked oil ETCs, including one devoted to Brent crude oil.

Employee share schemes and cash

If you have shares that have been granted to you via all-employee savings related share options or profit sharing schemes, you can transfer these into an ISA within 90 days of receiving them.

You can also now hold cash in an ISA, but the HMRC will tax cash interest in excess of £180 per year that is withdrawn from the ISA. Holding cash in a shares ISA really only makes sense if you are planning to invest that cash, or take it out of the ISA. The alternative is a cash ISA, which only pays interest, and which is a separate product. For cash ISAs it is better to shop around the banks and building societies and focus on the rates offered and the terms and conditions.

What CAN’t go in my ISA?

There are some securities you can’t buy for your ISA. Funds and ETFs that do not have UK reporting status are not eligible. You can still buy them, but they would become subject to capital gains tax and stamp duty, and would sit outside your ISA allowance.

Small cap companies and companies listed on AIM are also not eligible for your self-select ISA. While a number of Contracts for Difference brokers have looked at the possibilities of housing CFDs in an ISA, currently they are not eligible. Some CFD brokers do offer stocks and shares self-select ISAs that can be accessed and managed using the same log in as a CFD trading account.

Where to find your self-select ISA

Self-select ISAs can be opened with dozens of different providers in the UK. For a self-select shares ISA, we’d suggest making stockbrokers your first port of call. Choosing a stockbroker is another topic, but in short, they are more likely to be shifting larger volumes of shares in and out of the market, and should be able to provide you with lower fees and commissions.

Don’t forget, to be eligible for an ISA, you must be tax resident in the UK (i.e. ordinarily resident for at least 183 days a year). Foreigners CAN open an ISA, but it is best to check with the HMRC and your home tax authority. For example, it makes less sense for Americans resident in the UK to open an ISA.

Picking the best self-select ISA

Ultimately much depends on what you want to use your ISA for. The widest range of securities and funds is always the best bet. It is also worth looking at the fees, including how much you would be charged per transaction and any annual administration and custody fees that might apply. If you are only planning to buy and hold a few funds, execution fees will be less of an issue, but don’t forget that funds also apply an annual management fee and frequently additional fees on top of that. If a fund is only going to pass on a 5% return in a year, you don’t want to see 2% go back to the manager in costs.

Before opening an account, do be sure that your provider is going to give you access to the markets you want, with no strings attached. If you plan to do a lot of trading on overseas markets, be sure you are completely clear what the fees will be for doing so, as they can be higher than for UK share trading.

Trade shares with our Partners

Broker ISA Account Fund & Share Account SIPP Account Cost Per Trade
Hargreaves Lansdown ISA Account tick Fund & Share Account tick SIPP account tick £11.95* Apply
Saxo Capital Markets - Youinvest ISA Account tick Fund & Share Account tick   £4.99 Apply
AJ Bell - Youinvest   Fund & Share Account tick   £1.00** Apply
AJ Bell - Youinvest ISA Account tick Fund & Share Account tick SIPP account tick £9.95* Apply
* Cost per trade shown as maximum cost per trade. Discounts for active traders may apply
** Transactions at 3pm daily. Immediate trades cost £5.00 on UK shares

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18th December 2017
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