Getting started in investing: Part eight

8. To ISA Or Not?

Earlier we said that whatever we plump for as a first investment, we'll probably want to shelter it from the taxman by using an ISA. So let's spend a little time looking at ISAs.

Double the protection An ISA protects you from both income tax and capital gains tax (CGT).

The income tax benefits are not what they were. Basic rate taxpayers don't have to pay tax on dividends, so you only benefit if you're a higher-rate taxpayer.

The key attraction of an ISA is the protection from CGT. The CGT rate of 18% is a lot less than it used to be, but it may not feel that way when you're writing out a big cheque to the taxman. And, although you get an annual exemption from CGT (£10,100 when we wrote this guide), if you're investing regularly over a number of years, you can soon build up profits far greater than this amount.

Tax rates change Tax rates change over time as well. So although investments aren't taxed that significant at the moment, that may not always be the case. Of course, at some stage the government could also decide to do away with ISAs as well. We think that's less likely however, as it seems a sure-fire vote loser.

It pays to protect your investments right from the very start, even if you are investing as little as £25 a month. Most funds can be put in an ISA for no additional charge so you're getting valuable protection at no additional cost. Think of taking out an ISA as free insurance against paying tax in the dim, distant future. You may not need it, but it's nice to have it just in case.

Part 2: Why you need to invest

Part 3:What are your options?
Part 4: Why shares are best
Part 5: Common interest vehicles
Part 6: Why trackers make sense
Part 7: The benefits of regular investment
Part 8: To ISA or not?
Part 9: Going beyond Trackers
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