ISAs – A guide
to tax-efficient
investing
Understanding ISAs:
A tax-efficient way to invest
An Individual Savings Account (ISA) is one of the best ways to put
money aside for the long term. You get valuable tax benefits, easy
access to your investments and, if you choose our Stocks and Shares
ISA, you also get lots of investment choice.
This ISA guide takes you through some of the
things to think about before starting to invest
in an ISA. We begin with the basics and
then look at your investment options before
finishing with a few ways Fidelity can help
you decide where to put your money.
Important information
The value of investments and the income
from them can go down as well as up, so
you may get back less than you invest.
While you’re reading the guide, please
keep in mind that the tax treatment of
ISAs depends on individual circumstances
and all tax rules may change in the future.
If you remove money from your ISA, you
Contents cannot reuse that ISA allowance.
ISA basics: Six key questions 3 This information is not a personal
recommendation for any particular
What you can invest in 6 investment. If you’re unsure about the
suitability of an investment for your
How to choose investments 9 personal circumstances, you should
speak to one of Fidelity’s advisers or an
Navigator 10 authorised financial adviser of your choice.
Please note that the information in this
Select 50 12 guide is correct as at December 2023.
For the latest information, please visit
Investment Finder 14
fidelity.co.uk/isa
2
ISA basics: Six key questions
It might seem like ISAs are complicated, but they’re actually not as
hard as you might think. These six questions tell you pretty much
everything you need to know.
What is an ISA? How much can I invest?
It might seem a strange way to start, but we’ll For the current tax year, you can invest up to
begin with what an ISA isn’t. It’s not actually £20,000 in your ISA. When the tax year ends
an investment. Instead, it’s an account that (on 5 April), any unused allowance is lost.
you put your investments in. Almost anything You then get a new allowance for the next
you can hold inside an ISA, you can also tax year.
hold outside one. The big difference is that
when you put your investments in an ISA they What’s more, this allowance is per person,
receive tax benefits. This means you: so a couple could save as much as £40,000.
This can very quickly become a sizeable tax-
■ Don’t pay capital gains tax on growth efficient nest egg.
■ Don’t pay income tax on interest (which
you get from bonds, for example) Can I invest for my children in an ISA?
■ Don’t pay tax on dividend payments There is a separate ISA account for UK‑resident
(which come from some shares) children called a Junior ISA. It has the
■ Don’t even have to put ISAs on your same tax benefits as an adult ISA and its
tax return allowance (currently £9,000 per child) doesn’t
affect yours.
Are the tax benefits worth it? Parents or guardians can open and manage
For most people, yes. After all, they could a Junior ISA, but the money belongs to the
mean years (or even decades) of not having child and is locked away until they are 18.
to pay income or capital gains tax on your
investments. This can really add up – and
keeping this extra money invested in your
account means it could grow as well, further
boosting your returns.
3
Please note, if your child was born between This has to be used within three years of their
1 September 2002 and 2 January 2011, partner passing away or 180 days after the
the Government would have automatically estate’s administration is completed, if it takes
opened a Child Trust Fund (CTF) on their longer to resolve.
behalf. You cannot hold a Junior ISA and
a CTF at the same time, but a CTF can be When should I start?
transferred into a Junior ISA.
As the saying goes, there is no time like
the present. Of course, you must have the
What happens with an ISA when money to put aside in the first place, but the
someone passes away? sooner you start, the more time your savings
When someone dies the ISA forms part of have to grow.
their estate for inheritance tax, however while
Time is the single biggest factor that
the estate is being processed the other tax
determines growth opportunity, so the longer
benefits regarding income and gains remain
you have the better, although, of course, there
in place either until the assets are transferred
are no guarantees.
to the beneficiary or three years from the
date of death.
However, there is an extra ISA tax benefit
for spouses and civil partners. Although
they cannot inherit the actual ISA accounts,
they receive an additional ISA allowance
that is equal to the total value of their loved
one’s ISAs.
4
5
What you can invest in
There are lots of options out there. Where you choose to put your
money will depend on your needs, goals and attitude to risk.
Asset classes
There are five main ‘asset classes’ (or, to put it a different way, categories of investments).
We’ve described them in order of risk from cash, at the low end, to equities (shares) at the
higher end.
Cash Bonds
What is it? Bank and building society What are they? A bond is just a type of loan.
accounts that pay interest, plus cash funds The key thing to remember is that you are the
offered by investment companies. person loaning the money to a government
or company.
Why do people use it? Cash savings are
typically very low risk, so you are very unlikely Why do people invest in them? When you
to lose money. You should also know how buy a bond, you should receive regular
much interest they will pay (though this can interest payments over a pre-defined period
still change with little notice). and your initial investment back at the end
of the period. Many bonds are relatively
What are the drawbacks? Generally, cash secure and pay a stable income – others
accounts don’t offer much potential for can be more volatile, but offer more
income or growth as inflation will erode the income potential.
value over time.
What are the drawbacks? There are no
guarantees with bonds (though it is very
unlikely that bonds issued by countries such
as the UK or the US would default). Even the
biggest companies can get into financial
difficulties. Most bonds don’t offer much
protection against inflation, as the income
they pay is fixed, while prices may rise.
6
Commodities Equities (stocks and shares)
What are they? Raw materials and What are they? A stake in a company.
agricultural products from coal to coffee – Effectively, when you buy a share, you
and, of course, gold. become a part-owner of a business.
Why do people invest in them? Most Why do people invest in them? You benefit
commodities have an intrinsic value, so they if the company does well, as its share price
are unlikely to collapse in price. They also is likely to rise and it may give you some of
tend to perform very differently to other its profits in the form of dividends. Over the
investments, so holding them alongside other long term, shares have tended to perform
funds can make your returns less volatile. better than other investments – though there
is no guarantee that this will continue to
What are the drawbacks? They can be happen in future.
difficult to invest in directly (apart from gold)
and their prices can still change significantly What are the drawbacks? Share prices can
– down as well as up. That said, they are fall in value as well as rise – and change
considered lower risk than shares. rapidly in a short time. Some companies go
broke. In this situation, shareholders may not
Property get anything back.
What are they? Funds that mainly invest in
commercial buildings, such as shops, offices At Fidelity, you can invest in shares
and factories. or other ETFs. Please see page 15 for
more information.
Why do people invest in them? They offer
a relatively stable and attractive income that Please note, that there are some assets
comes from rent payments on the properties that cannot be invested into directly with
they own. There is also the potential for some Fidelity however, you can invest indirectly
capital growth if the properties rise in value. via funds. e.g. a fund that invests in
bonds or property.
What are the drawbacks? The income is
not fixed, tenants may miss payments and
unoccupied properties don’t receive any rent.
There are also costs involved in maintaining
properties. Property prices can fall as well as
rise and they can be difficult to sell at times.
7
Funds
Funds are pooled investments where multiple investors combine their money to be managed
by professionals. These funds can focus on various assets like cash, bonds and equities or
even a mix to offer a diversified portfolio. Investing in funds has a range of advantages:
Pooled power
Your fund manager may be able to put your money into investments that you
wouldn’t be able to access on your own – and you’ll benefit from the buying
power of a big company.
Start smaller
Funds allow you to invest across a wide range of investments with a small
amount of money. Creating a comparable portfolio on your own could take a
lot more cash.
Spread your risk
With a fund, your money can be invested in different asset classes, companies,
sectors and geographic regions. This broad mix could help spread your
investment risk.
Put your money with an expert manager
An actively managed fund has an expert manager who uses their experience to
decide where to invest. They are supported by analysts who research companies
and markets in far more detail than most private investors could manage.
Benefit from a lower-cost way to invest
Passively managed funds track the performance of particular indices, such as
the FTSE 100 or the S&P 500. This means that in one low-cost investment, you
can benefit from the stock‑market performance of an entire country or region.
8
How to choose investments
With hundreds of investments on offer, it can be hard to know where
to begin. These five questions could help you get started.
1. What are you investing for? 4. How do you want to invest?
Everything begins with what you want to You can invest lump sums, make regular
achieve. Once you have a clear goal in mind, contributions or choose a combination of
it’s a lot easier to make plans. That said, your both. However you decide to save, the
goal doesn’t have to be something specific. sooner you start the more time you give your
It’s fine if you just want to put money aside investments to potentially grow, although this
for the future. is not guaranteed. A lump sum gets your
money invested immediately but if you worry
2. How long will you be investing for? about picking the right time to invest, as
Your time horizon matters for two reasons. many of us do, you could alternatively drip
First, if you are investing for longer, you may feed your investment with a regular monthly
be able to cope with more risk, as it normally contribution and spread it over time.
means more growth potential and there’s time
to recover if your investments fall in value. 5. How much help do you need?
Second, as your deadline gets closer, you Our online tools and guidance are designed
may want to reduce the level of risk, as this to help many different types of investors, by
tends to mean performance is less volatile. giving them the level of support they need.
■ If you want to choose a Multi Asset fund
3. Are you aiming for income or growth?
and need some help, take a look at our
This is important, because some investments Navigator tool on page 10
are much better suited to producing a
regular income (such as bonds and equity
■ If you like doing your own research, but
income funds), while others are better if want a head start on which funds to
you are aiming for growth (such as other consider, try Select 50 on page 12
stockmarket funds). ■ If you want to build your own short list of
funds that you can analyse in your own
time, start with our Investment Finder on
page 14
Whatever approach you choose, please make sure you understand your chosen funds before
you invest, so you can be certain that they are suitable for your own personal circumstances.
It’s important to keep in mind that the value of investments and income from them, can fall as
well as rise, so you may get back less than you invest.
9
Navigator
Our Navigator tool makes it easier for you to invest by giving you a
Multi Asset fund to consider.
If you don’t want to choose individual funds charges (which can be as low as 0.20%), a
yourself, consider an investment that actually transaction cost and our service fee, which is
contains a selection of funds. This is known as typically 0.35%.
a ‘Multi Asset fund’.
Helping you make your fund choice
Top funds chosen by our experts So, that’s the ongoing management covered,
In the case of the Multi Asset funds within but what about choosing a fund in the
our Navigator tool, the underlying funds are first place? This is where the Navigator
chosen by the experts in Fidelity’s Multi Asset tool comes in. It points you towards a
team, who have direct access to the fund single investment that holds a selection
companies and a team of researchers to of funds chosen by the Fidelity Multi Asset
support their decisions. team. This specialist group of experienced
analysts and fund managers is dedicated to
They then combine funds that invest in different developing investments designed to meet a
asset classes and regions, which allows them wide range of investor needs. All you have to
to create a series of funds offering different do is visit fidelity.co.uk/navigator and make
levels of risk and potential return. a few straightforward decisions. It will then
show you a fund to consider based on the
Fund management selections you have made within the tool.
Each Multi Asset fund is managed regularly
by our team, who research investment 1. Would you prefer an income or
opportunities and watch the markets. growth fund?
They also handle the day-to-day decisions Income funds produce regular sums that
involved in managing a diversified portfolio. can be reinvested back into the fund or
placed in ‘cash within your account’ and
All you need to do is keep an eye on paid out at a later date. Growth funds
performance and, every now and then, cover a wide range of strategies,
make sure the fund is still the right risk level from investments targeting capital
for your needs. If anything has changed, it’s preservation to those aiming for the
easy to switch between funds in the range highest‑possible performance.
– and there’s no fee for doing this. The only
charges are the ongoing management
10
2. How do you want your fund managed? 3. What level of risk would you like?
With growth and income funds, there are For some of our investment options within
two ways your money can be managed. this tool you need to choose a level of risk
An expert focus fund is actively managed you are comfortable with. We know this is
by specialists who look for the best sometimes difficult to do, so we’ve created
investment opportunities. Alternatively, you short descriptions to help you. Just have a
can keep costs lower by having a cost read through and you may find one that
focus tracker fund. matches your views.
Important information
Please note that Navigator is not a personal recommendation in respect of a
particular investment. If you need additional help, please speak to one of Fidelity’s
advisers or an authorised financial adviser of your choice. You should regularly
reassess the suitability of your investments to ensure they continue to meet your attitude
to risk and investment goals.
11
Select 50
Select 50 turns an extensive range of fund options into a much
shorter list that is recommended by experts.
With around 50 funds on the list, you should Chosen by experts
be able to find some ideas that could meet To produce the list, investment experts
your needs – and we have filters to help if analyse funds in detail; looking all the
you know what you’re looking for – without way down to individual holdings and even
having to research lots of investments just to transactions to get a real understanding of
get to the one that’s right for you. how returns are produced.
The list includes active and passive funds, They also meet managers in person, so they
investment trusts and exchange-traded funds can hear directly from them about what they
(ETFs) from over 150 providers. aim to achieve and how they plan to do it.
It’s produced in partnership with Fundhouse,
an independent fund research company. This Fund list management
adds independence and enhances our fund Of course, the research doesn’t stop when
selection process. a fund makes the list. Select 50 is routinely
updated every quarter and funds may be
removed at any point during the year. For the
latest list, please go to fidelity.co.uk/select
Important Information
Select 50 is not a personal
recommendation to buy funds. Equally, if
a fund you own is not on Select 50,
we’re not recommending you sell it.
You must ensure that any fund you
choose to invest in is suitable for your
own personal circumstances.
12
A few companies you’ll find on Select 50
13
Investment Finder
Our Investment Finder makes it easy for you to explore our full range
of funds from over 6,000 investment options (including a number
of different types of Funds, Shares, Exchange-Traded Funds and
Investment Trusts). Just pick the type of investment you’re interested
in and then use our filters to create your own shortlist.
The filters cover everything from fund Once you’ve found a few funds that fit your
providers, sectors and asset classes requirements, you can research them in more
to regions, charges and fund size – as detail with our online factsheets and invest
well as more technical areas, such as through our website when you are ready.
management styles and risk measures.
Find out more at fidelity.co.uk/investmentfinder
Looking ahead
Please remember that you need to review your investments regularly to make sure
they are still suitable for your needs, goals and attitude to risk.
The easiest way to do this is through our secure website. You can find out more at
fidelity.co.uk/login
14
You can hold company shares in your ISA
Our online share dealing service gives you the option of holding company shares
alongside funds, cash and other investments in your ISA. You can now search, compare
and invest in over 2,500 US, UK and European shares. This gives you more options to
diversify your share portfolio.
You can invest in any of the stocks listed on:
■ The FTSE All-Share Index
■ FTSE AIM 100 Index for smaller UK businesses
■ The ISEQ 20 index of Ireland’s largest companies
■ S&P 500
■ Nasdaq
The share dealing service also covers investment trusts, exchange-traded funds (ETFs)
and exchange-traded commodities. You can search through all these options using our
Investment Finder (introduced on the previous page), plus you can find a selection of
them on Select 50 (introduced on page 12).
The charges for buying and selling investments within our share dealing service
are different from the charges on funds. There is a charge for each purchase or
sale, plus stamp duty and any other market charges. This goes down for scheduled
transactions such as dividend reinvestments and investments through a regular
savings plan. Please read our Key Features Document for full details on our pricing.
Visit fidelity.co.uk/doingbusiness
When you are thinking about investing in shares, it’s generally a good idea to consider
holding them alongside other investments in a diversified portfolio of assets.
15
Start your
ISA today
fidelity.co.uk/isa
0800 41 41 61
Issued by Financial Administration Services Limited, authorised
and regulated by the Financial Conduct Authority. Fidelity, Fidelity
International, the Fidelity International Logo and F symbol are
trademarks of FIL Limited. UKM1123/MH2304/CSO11875/301124
PI-GEN-01 FIL000010 [WF 1611788]
