Online trading has clearly done a great deal to cut trading expenses, but an equally important part of keeping your costs down is to minimise any unnecessary taxes. There are a number of ways in which a low-cost online trading account can help you to do this.
One is to employ tax wrappers, such as individual savings accounts (Isas) and self-invested personal pensions (Sipps). Most online stock brokers offer one or both of these accounts, which can be used to hold a wide variety of UK and international shares. With effect from August, this now includes Aim-listed shares – a change investors have been demanding for a long time. Isas and Sipps often come with higher account management fees than regular trading accounts, but the tax savings can pay for this in the long run.
For very active traders, the 0.5% stamp duty that you have to pay every time you buy UK shares can be an unwelcome drag on returns. Trading in markets such as the US, which don’t impose stamp duty, can be a way of getting around this, as well giving you access to a wider range of potential investments.
Lastly, it’s worth being aware that there is no income tax or capital gains tax on profits you make through spread betting, since it’s classed as gambling. This doesn’t mean that spread betting can replace traditional investments – it will cost you more on positions held for the long term. But for short-term trades, it may be worth considering, especially if you have used up your annual capital gains tax allowance.