Learn To Invest

What is ISA and what is it made for?

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It’s made to save you money. Not satisfied with the answer? Please proceed. 

Happy end

Let’s say, you’ve invested 1,000 pounds in stocks expecting a 10% yearly return. At the end of the first year, you’d have 1,100 pounds. During the second year, the same 10% would make your 1,100 pounds become 1,210. The latter would accumulate another 10%, and so it would be happening every year. At the end of a decade, you’d have roughly 2,500 pounds. While ten years sounds pretty far away, doubling your investment at the end seems a worthy reason to walk the way. Moreover, as a shareholder, you’d be receiving your regular share of company profits. That’s why investing long-term is so sweet: while waiting to make a solid capital gain, you are receiving dividends. But…

But… 

Making capital gains and getting dividends is perfect – but! – before you cash on either of those, you pay a tax.

And here are two problems we’re facing:

  1. Capital gains
    The difference between the initial value of your stock and its value when you sell it is a capital gain. It’s taxed. Every time you sell a stock with a positive difference – you pay.
  2. Profits
    A company makes a profit. A part of that profit is yours – you get it as dividends. That’s your profit now. So, it’s taxed, too. 

Two solutions

GIA

It stands for General Investment Account. Basically, it’s a by-default option that lets you invest in most assets out there. As much as you want. Doesn’t have any nice features – you pay all the possible taxes and report whatever there is to report. 

ISA

Individual Saving account. You cannot add more than 20,000 pounds here each year. But (remember that But-man – he’s not bad all the time) you don’t pay taxes! Also, you have much less reporting trouble than with the GIA.

What do I choose?

You like it all to be said directly, don’t you? Alright: if you want to make the best of your investments over years and save all there is to save instead of paying taxes – choose ISA. 

How to open?

Here is the instruction to have an ISA with Orca:

  1. While in the app, click ‘ISA’ 
  2. Agree on the conditions
  3. Congratulations!

Where else you’d have a two-step instruction?

ISA is nice because it lets your investment go easy on taxes – and! – opening an ISA is free with Orca. 

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