The new tax year has arrived and that means a new £20,000 Isa allowance for investors.
It’s never been more important to take advantage of the tax-free investing opportunity that a stocks and shares Isa offers, as investors have been repeatedly squeezed on their returns.
By investing early in the tax year, you can start taking advantage of your allowance – and hopefully some investment gains – sooner.
But it’s not just this year’s Isa allowance that you should think about, it’s also worth considering whether it would pay off to move your existing stocks and shares Isa pots to a cheaper platform.
This can save you a substantial amount in investment fees and earn you cashback.
Investment platform eToro is offering up to £10,000 cashback for investors who move large pots.
We explain how to take advantage of that, why investing in an Isa is a wise move, and what eToro’s Isa investors are buying.
> Find out more about eToro’s stocks and shares Isa
Engineering giant Rolls-Royce is among Isa investors’ top held stocks
Why investing in an Isa pays off
Outside of an Isa, investors face capital gains tax on profits and dividend tax on payouts from companies.
Capital gains tax rates have been raised in recent years, from 10 per cent to 18 per cent for basic rate taxpayers, and from 20 per cent to 24 per cent for higher rate taxpayers.
Meanwhile, the annual capital gains tax-free allowance has been slashed from £12,300 down to just £3,000.
Dividends outside of an Isa are also taxed and new higher rates have kicked in this tax year. Dividend tax will rise from 8.75 per cent to 10.75 per cent for basic rate taxpayers, and from 33.75 per cent to 35.75 per cent for higher rate taxpayers. Additional rate taxpayers will find their rate stays the same at 39.35 per cent.
Invest in a stocks and shares Isa, however, and there is no capital gains tax or dividend tax to worry about.
Most popular shares and funds
The top ten shares and funds being bought by eToro’s investors for their Isa reflect how many use their tax-free pots to invest all around the world.
US stock market, which dominates global markets, takes top slot, followed by the world’s largest company chipmaking giant Nvidia, but a British name comes in at number three in the form of high-flying engineer Rolls-Royce. A gold ETF also makes the list, with investing in bullion in this way proving hugely popular as the price has soared.
These are eToro investors most bought shares and ETFs:
Vanguard S&P 500 UCITS ETF
The two versions of this low-cost ETF that tracks the main US stock market index are top of investors buy lists. The accumulation version reinvests dividends to compound returns, while the distribution version pays out dividends.
NVIDIA Corp
Nvidia has grown to become the world’s largest company as its chip designs are used in artificial intelligence and it has benefitted from a wave of spending by so-called hyperscalers, building out computing power.
Rolls-Royce Holdings plc
Rolls-Royce is a British engineer that specialises in aircraft engines but also operates in defence and is working on small modular nuclear reactors. It slumped in the pandemic as airline miles fell off a cliff but a turnaround plan has seen its shares soar. They are up 996 per cent in five years.
Gold
Investors have flocked to buy ETFs tracking the gold price as it has soared. Gold is up 169 per cent over the past five years.
Invesco EQQQ Nasdaq-100 UCITS ETF
This ETF tracks the Nasdaq, the US stock market index that specialises in tech firms. Investors backing the AI boom have rushed to buy.
Vanguard FTSE All-World UCITS ETF
This ETF tracks the global stock market and allows investors to hold companies from all around the world at a low cost.
Amazon.com
Amazon remains a popular share for investors, who are backing the digital retail giant that has also profited handsomely from cloud services and built a streaming service and studio business.
It may be a US company but Tesla is a popular holding for UK investors in their Isas
Vanguard FTSE All-World High Dividend Yield
This ETF invests in high-yielding companies from around the world and is popular with investors targeting dividends. It also holds a lower proportion in US shares at about 40 per cent than a pure global tracker fund, which usually holds around 60 to 70 per cent.
BAE Systems
Britain’s defence giant BAE has seen its share price soar 325 per cent over the past five years, as geopolitical tensions, the Ukraine war and US pressure on Europe under President Donald Trump has led to a wave of military spending.
L&G
In contrast with BAE, insurance and financial firm Legal & General is something of a slumbering giant – its shares have fallen 7 per cent over five years. Its popularity in investors’ Isas owes a lot to its bumper 8.4 per cent dividend yield.
Tesla
Electric car making pioneer Tesla needs no introduction but many may not realise how it has broadened its scope well beyond the EVs that made its name. Boss Elon Musk has pushed the firm into a range of future-facing endeavours, ranging from energy generation and storage to driverless taxis, artificial intelligence and robotics.