Every year, savers have the opportunity to receive a tax-efficient income and tax-free growth from an individual savings account (ISA). Yet many do not maximise the opportunities for income and growth provided by investment trusts as part of a Stocks and Shares ISA.
The benefits of Stocks and Shares ISAs
The ISA allowance for 2022/23 is £20,000 and the deadline to maximise your allowance is 5 April 2023. That means there’s still time to take advantage of your ISA allowance this year and shelter savings from capital gains tax and income tax charges.
Stocks and Shares ISAs can shelter assets from almost any recognised stock exchange, including equity markets, bond markets and even a range of multi-asset funds, which could include cash and property holdings. A Stocks and Shares ISA therefore provides an attractive way to participate in the long-term growth potential of global markets.
Investors can buy individual shares or they can choose to invest in funds or investment trusts. While shares and pooled funds, such as OEICs, can be a popular choice, investors should also consider the benefits of investing in a Stocks and Shares ISA via investment trusts.
Holding investment trusts in an ISA
Investment trusts are structured as companies and listed on the stock exchange. They aim to generate profits for shareholders by investing in other companies, offering investors a way to diversify their holdings, particularly in global markets, and can target a regular and growing income as well as medium- to long-term capital growth.
Investors buy shares in investment trusts, rather than units, as they would in a fund. Because there are only a fixed number of shares, investment trusts are also known as closed-ended investments. Shares can trade at a premium, or a discount, to the underlying value of a trust’s investments depending on supply and demand. However, this structure can give the trust’s managers more flexibility, and can keeps trading costs and fees down.
Although all investments involve risks including possible loss of principal, most investment trusts allow investors to set up a regular savings scheme, which can be especially useful for those with relatively small sums to invest, or they can be opened with a one-off lump-sum deposit.
What sort of investment trusts could suit ISAs?
Investment trusts offer a wide range of options for ISA investors to choose from, including UK-focused equity income or growth-oriented trusts, as well as global equity, emerging markets and even multi-asset options. Deciding which type of trust is right for you will depend on your attitude to risk and what investments you currently hold, as well as your growth or income objectives.
- Trusts targeting long-term growth Many investment trusts invest across a diverse portfolio of shares in individual markets, such as the UK, or internationally, with the aim of sharing in the long-term growth of the markets in which they invest. The closed-ended structure of investment trusts makes them ideal for longer-term capital growth strategies, as portfolio managers don’t have to sell their investments or keep large amounts of cash for when investors want their money back. Investment companies can also borrow money to invest – known as gearing – which can enhance long-term performance.
- Trusts that can generate an attractive income Many trusts also invest in income-producing assets and pay out regular dividends, making them attractive for investors in need of an attractive income. Some will pay a higher yield; others will be more focused on delivering a yield plus capital growth, where the managers are looking to invest in companies that pay above average yields, but also have the potential for future share price appreciation. This twin-track approach can help deliver sustainable income streams over the longer term.
By their very nature, investment trusts are long-term vehicles that look to generate wealth over decades, not just years. As a result, adding investment trusts to a Stocks and Shares ISA may suit investors who are looking to build their own long-term savings in a tax-efficient manner.
The clock is ticking
The deadline for this tax year’s ISA allowance is fast approaching. If you haven’t yet considered investment trusts for your stock and shares ISA for this tax year, now is the time. And J.P. Morgan's range of investment trusts can offer the perfect vehicle, from blue-chip UK firms to the best of small and medium British enterprise, or a carefully curated portfolio of sustainable, innovative emerging market companies.
Find out more about J.P. Morgan’s range of investment trusts >