Robo Advisors and Individual Savings Accounts (ISAs)
Are you a UK investor looking to grow your money with a robo advisor? Then you need one that offers investment via an ISA. Compare the best ISA robo advisors below, sign up and enjoy generous tax benefits.
| - | Broker | Rating | Fees | Pros | Account size | - | |
|---|---|---|---|---|---|---|---|
| 1 |
 |
Fees: 42p p/m
Depends on investment amount |
|
25
Min. Account Size
Min Account Size
25
Fees
42p p/m
Depends on investment amount
|
Invest Now! |
Min Account Size
25
Fees
42p p/m
Depends on investment amount
|
|
| 2 |
 |
Fees: 0%
Tiered, 0.4 to 0.70% |
|
0
Min. Account Size
Min Account Size
0
Fees
0%
Tiered, 0.4 to 0.70%
|
Invest Now! |
Min Account Size
0
Fees
0%
Tiered, 0.4 to 0.70%
|
|
| 3 |
 |
Fees: 0.75%
Flat fee regardless of account size. Fully managed only |
|
10000
Min. Account Size
Min Account Size
10000
Fees
0.75%
Flat fee regardless of account size. Fully managed only
|
Invest Now! |
Min Account Size
10000
Fees
0.75%
Flat fee regardless of account size. Fully managed only
|
|
| 4 |
 |
Fees: 0.45%
Fully managed portfolio is 0.75% |
|
500
Min. Account Size
Min Account Size
500
Fees
0.45%
Fully managed portfolio is 0.75%
|
Invest Now! |
Min Account Size
500
Fees
0.45%
Fully managed portfolio is 0.75%
|
What Is An ISA?
Aside from keeping fees low, the best way to maximise investment savings is to minimise taxes and ISA robo advisors can help with that. When determining which robo advisor you should choose, it is important to look for providers that offer tax efficient savings plans like the UK's Individual Savings Accounts. Individual Savings Accounts, or sometimes referred to as just ISAs, allow investors to protect their investment gains from taxes.
Any income from investment holdings, such as dividends that are generated from within the Individual Savings Account, will not be subject to any tax.
In addition, capital gains are also not taxed. This is a huge benefit as the ETFs you hold within a robo advisor Individual Savings Account will not be subject to tax when they rise in value. For example, if you buy 1000 shares of an ETF that tracks the FTSE 100 for £20 per share, and upon retirement sell those shares for £75 per share, you would normally owe taxes on that gain.
With an Individual Savings Account, you do not owe any taxes on those gains. The £55,000 gain you made will not be taxed. Outside of an ISA, you would be required to pay tax on any dividends and capital gains that exceed the tax-free allowances of £5,000 (dividends) and £11,100 (capital gains). Depending on your financial situation, Individual Savings Accounts are more than likely a very valuable option for your retirement savings.
This article is going to go into more depth about these amazing tools, as well as provide you with some suggestions on how to get an Individual Savings Account with a ISA robo advisor.
ISA Reviews
Here you can see our comprehensive ISA reviews from leading UK banks. Compare all ISA types.
Santander ISAImpacts Of Taxes On Long-Term Investing
Before really diving into Individual Savings Accounts, it is important to make sure you recognise the importance of investing in a tax efficient manner. Protecting your investment gains from tax is one of the easiest ways to make sure your investments grow as big as possible over an investing lifetime.
Vanguard in the U.S. has done some analysis on the impacts of taxes on investment outcomes. They looked at the ending value of a retirement account with two realistic scenarios. The first scenario is an individual who invested in a tax-efficient account. The second scenario is an investor who invested in a fully taxable account. The difference in retirement values is huge.
The investor who utilised a tax-efficient account ended up with $194,313 more money, even after the money starts being taxable as it is withdrawn. That is a large difference and worth considering if you are doing any type of retirement investing.
Who Can Open An Individual Savings Account With ISA Robo Advisors?
Unfortunately, not everyone can open an Individual Savings Account. The rules also differ depending on the type of ISA you want to open. In general, the rules for opening these accounts can be summarised as follows:
- Cash ISA: 16 or over
- Stocks and Shares ISA: 18 or over
- Innovative Finance ISA: 18 or over
- Lifetime ISA: 18 or over but under 40 years of age
- In addition to these age limits, all individuals opening an Individual Savings Account must be a resident of the UK.
Types Of Individual Savings Accounts
There are four types of Individual Savings Account available for UK residents. Each one has specific uses and it is important that the investors understand each one and how it might fit into their overall investment objectives.
Here is a high-level summary of each of the four types of ISAs:
Cash ISA: Cash ISAs are simply savings accounts that you don’t need to pay tax on. These types of ISAs are typically used for short-term savings where you don’t want to take a lot of investment risk and the money will be needed on a shorter-term basis.
Stocks and Shares ISA: A Stocks and Shares ISA is meant for longer term investing (greater that five years) and where you want to realise the potential growth in the stock markets. In a Stocks and Shares ISA you can hold investments like individual stocks and ETFs. ISA robo advisors typically offer a Stocks and Shares ISA.
Innovative Finance ISA: An IFISA allows investors to use their annual ISA investment allowance to lend funds through the peer-to-peer (P2P) lending market. In other words, you can protect the interest earned by lending money via P2P networks.
Lifetime ISA: A Lifetime ISA allows individuals aged between 18 to 39 to save up to £4,000 tax-free each year. When you contribute £4,000, the government will pay a 25% bonus on your contributions, up to a maximum of £1,000 a year.
The most common type of ISA available for individuals interested in using robo advisors is the Stocks and Shares ISA. As investment platforms that utilise technology to make better investment decisions, robo advisors are well suited to Stocks and Shares ISAs since these accounts can be used to fully invest in the stock market. The added benefit of being able to protect your robo advisor gains is an important consideration.
Since the Stocks and Shares ISA is the most common type of ISA available to robo advisor customers, let’s dive into these account types a bit deeper.
Investment Options In A Stocks and Shares ISA
The investment options available to individuals interested in investing in a tax efficient Stocks and Shares ISA are similar to those that can be bought in a general investment account. There are a few restrictions but for most investors these won’t be a concern as they are not typical investments that many investors make.
Here is a summary of the investment options available in a Stocks and Shares ISA:
- Cash and other cash-like savings securities like money market funds.
- Shares in companies or exchange traded funds that are listed on a recognised stock exchange. This includes the ETFs that most robo advisors use as part of their risk/reward balanced portfolios.
- The Undertakings for the Collective Investment of Transferable Securities (UCITS) authorised funds like unit trusts and open-ended investment companies.
- Public debt such as government bonds, corporate bonds, debentures and Eurobonds
ISA Robo Advisors are especially ideal for a Stocks and Shares ISA as they invest using ETFs to build a long-term portfolio. Those ETF investments are fully permitted in a ISA.
How Much Money Can You Put Into An Individual Savings Account?
It would be great if we could put all our money into tax efficient ISA robo advisors. However, the government doesn’t allow that so we need to understand the limits that exist so that we are not assessed any penalties, which can eat into any potential benefits with the ISAs. UK residents have a combined annual limit that can be contributed to all four of the ISA account types. In the 2017/18 tax year, the combined limit is £20,000. However, this amount is set by the government and can change so be sure to double check the allowable limit each year before you contribute. The £20,000 limit can be split up across all four ISA account types. For example, you can put £15,000 into your ISA Robo Advisors’ Stocks and Shares ISA account and £5,000 into a separate Cash ISA. The annual subscription limit can be split up in any way you want, depending on your investment planning requirements.
Keep in mind that if you are using a Lifetime ISA account, you can only contribute up to £4,000 to get the 25% match bonus on your contributions. If you use this ISA, then you can only contribute £16,000 to any combination of the other accounts. If you are saving for retirement, and want to use ISA Robo Advisors, then putting as much as possible into a Stock and Shares ISA will be the ideal scenario.
Withdrawing Money From An Individual Savings Account
If you are saving for your retirement, then withdrawing money from any retirement account is not recommended. You want to give your money a long time to be able to compound. The longer you leave it alone, the more money will have when you are ready to start drawing from it to fund your retirement. However, Individual Savings Accounts do allow for withdrawals. You can typically withdraw money from both a Stocks & Shares ISAs at any time as there are no lock in periods. In fact, regulations governing ISA state that funds within a Stocks & Shares ISA must be made available to the owner within 30 days of the request.
Downside Of Using A Stocks And Shares ISA
There is one main drawback of using a Stocks and Shares ISA. In a general investment account, investors can sometimes offset any capital gains made in the stock market by any losses incurred on other investments. For example, if you have a £5,000 gain on a FTSE 100 ETF and a £1,000 loss on Facebook stock, then you can limit the taxes owed on the £5,000 gain by applying the Facebook loss to that gain. This can greatly limit your tax exposure. Investments located within a Stocks and Shares IRA are not allowed to take advantage of this offsetting feature. However, since the gains inside the ISA are already protected it is not usually an issue. However, if you are looking to maximise your tax efficiency, then you need to keep this capital gains offset rule in mind when putting money into your ISA.
UK ISA Robo Advisors
If you are a UK resident then you should strongly consider using an Individual Savings Account in order to protect your investment gains from tax. The impact of avoiding tax can be massive on your ending portfolio value, so it is worth while making the effort to set on up. There are a number of ISA Robo Advisors available to investors in the UK. Here is a list and brief summary of each of these options that you can consider. Make sure you read our reviews on this site to make sure you choose the best option for you.
Nutmeg: Nutmeg is the UK's biggest robo-advised investment service that offers hassle-free ISAs. Nutmeg offers Stock and Shares ISA using their proprietary investment technology to build efficient portfolios. Nutmeg also offers a Lifetime ISA option.
Scalable.Capital: Scalable.Capital is Europe's fastest growing digital wealth manager that offers personalised, globally diversified and fully managed portfolios. They optimise portfolios and monitor risk based on the latest quantitative research. Scalable.Captial offers a full Stock and Shares ISA.
Moneyfarm: Moneyfarm is an online investment advisor and one of the largest digital wealth management companies in Europe. The Moneyfarm Stocks and Shares ISA allows you to grow your medium-term savings tax-free, with the flexibility to withdraw or transfer funds whenever you want.
Munnypot:Munnypot is an online financial advice service that automatically selects the products and funds given the investor’s chosen risk level. They then monitor and rebalance your pot directly to your goal objective. They will take advantage of the annual Stocks & Shares ISA allowance where possible for tax efficiency and the best potential returns.
Summary – ISA Robo Advisors
Individual Savings Accounts are amazing products that can help UK residents maximise their investment portfolios so they have as much money as possible available at retirement. By protecting dividend income and capital gains from tax, more of your money is allowed to work for longer in a robo advisor account. The most common type of ISA available from robo advisors is the Stock and Shares Individual Savings Account. In these accounts, you can hold exchange traded funds like those used in most robo advisors which means you can have efficient and automatically managed portfolios that fit your risk profile and investment time horizon.
In most cases, it is actually a good idea to maximise your ISA accounts before investing in other investment accounts like a general investment account. Since you can withdraw your money from an ISA at anytime, you can make sure you are tax efficiently investing as much money as possible all the time.