Making the most of investing is not just about picking investments wisely, it's also important to make sure you hold them in the best place.
The problem for those who prefer investment trusts to funds (Oeics and unit trusts) is that while their management charges are lower and there are no initial fees, they are traded like shares and so attract dealing charges.
You can either invest in a trust via a stock broker, as you would do shares, or through an online investing platform, such as Hargreaves Lansdown or the Share Centre. If you are happy investing without financial advice, the best option tends to be via an online platform as these tend to have cut dealing fees below tradition brokers' levels.
The important questions to ask yourself before you decide how to invest is whether you want to hold your trust in an Isa and hold all your investments in one place. By choosing an online Isa platform product, you essentially invest in an Isa wrapper which you can put round and number of trusts in the same year, as long as you don't exceed the annual Isa limit.
The advantage of investing via a platform is also that you can see and monitor your holdings in one place, you can do this whether you opt for an Isa product or just a straight forward investment account. The disadvantage is that you may pay a small fee for holding trusts.
Below we run the rule over some of the best platforms for investment trusts and their charges.
Hargreaves Lansdown - Vantage Isa
Hargreaves Lansdown is one of the big guns of personal investing. The website is packed with information from its advisers and analysts. Investment trust dealing costs from £9.95 per trade (up to £500), and this fee applies for both one-off investments and regular investing.
Investors holding investment trusts have an annual charge of 0.5% of their value, capped at £200 per year. The Hargreaves Lansdown platform is really best suited to fund investing rather than investment trusts, but is useful if you plan to hold the two together.
Alliance Trust Savings
Alliance Trust does not effectively charge an annual fee, as its £25 annual charge delivers two free trades worth £12.50 each (Previously there was no fee and no free deals).
On the flipside, it does charge a flat £12.50 per trade for investment trusts. However, doing this as regular monthly investing slashes the charge to £1.50 per deal, while dividend reinvestment costs £5
The Share Centre - DIY Isa
The Share Centre DIY Isa charges a quarterly management fee of 0.125% (£5 minimum) + VAT on investment trust holdings. Investment trust dealing costs 1% (£7.50 min), or a flat £7.50 with its trader option, which comes with a £20 + VAT quarterly charge.
Regular investing costs 0.5% (minimum £1). The big winner for the Share Centre is that it offers cost-effective dividend reinvestment, this costs 0.5% (min £1).
TD Waterhouse – Trading Isa
TD Waterhouse's Trading Isa charges no annual administration fee on balances above £5,100 (It is £30 for balances below this).
Monthly investment in investment trusts costs £1.50 and is made on the first or third Wednesday of the month. Outside this, deals cost £12.50, or an £8.95 frequent-trader charge applies for those making 15 qualifying trades in the previous three months.
Why invest through an Isa?
Investing in an Isa is one of the few opportunities we have for making money with very little tax but it doesn't offer complete tax-free status.
Any gains within an Isa are free from capital gains tax. Everyone has a CGT allowance of £10,100 per year and many may feel they are unlikely to ever make more than this in profit each year from selling their assets. However, those who invest consistently over time may one day be surprised at how much those investments are worth and holding them in a tax-free wrapper makes sense.
Income from investments is also treated in a tax-friendly way in an Isa. Corporate bonds and gilts income is tax-free. Dividends and shares income are still taxed at 10% before they are received, so basic rate taxpayers will not gain any extra benefit, but higher rate taxpayers do not have to pay any extra tax.
And if you are a basic rate taxpayer you may hope to be a higher rate taxpayer one day, so putting your investments in a tax-free wrapper is a sound tactic.
It used to be that investing in an Isa was not always worthwhile, as charges were higher. In most cases charges are now exactly the same as for normal investing, so using the Isa wrapper makes sense. (source ; www.thisismoney.co.uk )
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