If you’re an income investor who’s thinking about investing in REITs via your ISA this year, look no further. This article aims to answer questions you may have before you get started.
Can REITs be held in ISA?
Yes, REITs can be held within an Individual Savings Account (ISA).
The main benefit of doing so is that the investment profits you make up to your ISA allowance amount (currently £20,000 for tax year 2022/23) will be free from dividend tax, income tax and capital gain tax!
This means that you will not be required to pay taxes on the REITs dividends from your ISA!
What is an ISA?
An Individual Savings Account or ISA is a tax-free way to save or invest. In 1999, ISAs were introduced by then Chancellor Gordon Brown to encourage people to save and invest their money.
The main benefit of using an ISA is that the gains from your interest or investment returns are tax-free (up to the ISA allowance).
You can grow your money in one of each of these four types of ISAs every tax year:
- cash ISAs
- stocks and shares ISAs
- innovative finance ISAs
- lifetime ISAs
What is the ISA allowance?
Every adult in the UK aged 18 and above has a £20,000 ISA allowance for tax year 2022/23. This allowance can be spread across your ISA accounts and any gains made within the allowance will not be taxed.
Due to the tax-free benefits of using an ISA, many investors find it attractive to invest in REITs using their ISA. With the tax wrapper, this allows REITs investors and income seekers to enjoy tax savings on their REIT dividend pay outs.
On top of that, your ISA allowance will not eat into your dividend allowance, allowing you to maximise your tax-free returns.
How to invest in REITs using your ISA?
To hold REITs in your ISA, you’ll first need a stocks and shares ISA. This functions like any stock broker platform that allows you to invest in funds, bonds, REITs and stocks.
Not sure which REIT to invest in? Here’s our take on the Best REITs in UK.
To open an ISA, you’ll need to be:
- 16 or over for a cash ISA
- 18 or over for a stocks and shares or innovative finance ISA
- 18 or over but under 40 for a Lifetime ISA
You must also be a resident in the UK, a Crown servant (for example diplomatic or overseas civil service) or have a UK based spouse or civil partner if you do not live in the UK.
You can apply for a stocks and shares ISA account with any of these brokerages:
Stocks and Shares ISA Platform Comparison
| Investment Platform | Minimum Deposit | What can you invest in? | Fund Transaction Fee | Share Transaction Fee | Annual Charges | Transfer-out fee |
|---|---|---|---|---|---|---|
| AJ Bell | £500 | Stocks, funds | £1.50 | £4.95 or £9.95 | Custody on funds: 0.25% on first £250,000 of funds, shares: 0.25% of total share value, up to £3.50 per month | Free |
| BestInvest | £50 | Stocks, funds | Free | £4.95 | 0.4% (0.2% on ready-made portfolios) | Free |
| Charles Stanley | nil | Stocks, funds | Free | £11.50 | Stocks: 0.35% per annum or free if a transaction was made in the chargeable month, Funds: 0.35% per annum, or less if you have >£250,000 with Charles Stanley. | Free |
| Freetrade | £2 | Stocks, funds | Free | Free | £36 (£3/month) | Free |
| Fidelity | £1,000 | Stocks, funds | £10.00 | £10.00 | £45 or 0.35% (invest at least £7,500) | Free |
| Hargreaves Lansdown | £100 | Stocks, funds | Free | £11.95 | 0.45%, up to £45 | Free |
| IG | £250 | Stocks, funds | £8 | £8 | £24 per quarter, exempted if there are over three trades done over the quarter | Free |
| Interactive Investor | nil | Stocks, funds | first trade free, thereafter £7.99 | first trade free, thereafter £7.99 | £120 (£9.99/month) | Free |
| Interactive Brokers | nil | Stocks, Recognised UCITS | Free | £3 | £36 (£3/month, waived if commissions hit £3) | Free |
| InvestEngine | £2,000 | ETFs | Free | Free | Free | Free |
| iWeb | Nil, but there is a one-off £100 account opening fee | Stocks, Recognised UCITS | £5 | £5 | Free | Free |
| Vanguard | nil | Funds | 0.02% to 0.10% | Free | 0.15% | Free |
| Willis Owen | £25 | Stocks, Recognised UCITS | Free | £7.50 | 0.40% | Free |
Frequently asked questions
Stocks and Shares ISA vs General Account
The key difference between an ISA and a General Account is that ISAs provides a tax shelter for your savings and investments (up to your ISA allowance). You will not be taxed on the income, interest, dividends and capital gains in your ISA.
Otherwise, both the ISA and General stock broker account are pretty similar. You have access to your funds at any time and you’ll still need to pay transaction fees on your investments.
