S&S ISA Versus Dealing Account

It's one of the first decisions you need to make when you start investing. What account to open?

If you want easy access to your investments – rather than locking your money away – the decision gets much easier. It's a straight contest between two accounts: Stocks and shares ISA vs a Dealing account which can sometimes be called a general investment account.

To help you decide which might be best for you, let's compare them.

How do the accounts differ?

The main difference between a Dealing account and a Stocks and shares ISA involves tax.

You’ll normally be able to choose from the same investment range in a Stocks and shares ISA vs a share dealing account. But when you hold your investments in a Stocks and shares ISA, they’re protected from tax. Specifically, any gains you make won’t be subject to capital gains tax, and any income receive will also be sheltered from income tax.

Gains you make and income you receive from investments in your Dealing account, will be subject to tax if they exceed the tax-free allowances available.

After your basic personal allowance for income tax, the following allowances apply to investments held outside an ISA. Taxes on income or gains above these allowances could eat into your returns.

Tax-free Allowance

^*No planned reductions to the savings allowance

The other big difference between a Share dealing account vs Stocks and shares ISA is the amount you pay in each year. With an ISA, you can pay in up to £20,000 each tax year. You'll get a new allowance each tax year, but what you don't use doesn't roll over.

In a Dealing account, there's no limit on the amount you can pay in. But because the account doesn't have tax perks, most people look to use up their yearly ISA allowance first – then pay into a Dealing account if they've more money left over to invest.

One other difference to be aware of is that you can only open and pay into one Stocks and shares ISA in each tax year. You can open multiple Dealing accounts open in a year, and pay into them all.

What about for children?

It's a similar story when you weigh up a Stocks and shares ISA vs a Dealing account for a child. But there are some differences worth knowing about.

Just like an adult ISA, a Junior ISA lets you invest for your child without paying capital gains or income tax. However, the annual allowance is lower – at £9,000 a year – and the money is locked away until the child turns 18.

Family members or friends can pay into a Junior ISA, but it must be opened and managed by the child's parent or guardian. Because a Junior ISA is inaccessible until your child is an adult, it's most suitable for expenses such as university fees or a first-home deposit.

A Dealing account for a child is known as a bare trust, although they don't have the tax perks of a Junior ISA, you can still make use of your child's tax breaks – their annual income, dividend and capital gains tax allowances. One benefit of this account over a Junior ISA is that you can access the money whenever you want, letting you use it for your child's school fees or driving lessons, for example.

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