Disclosure: Links to platforms may be affiliate links, where we may earn a commission. This article is not personal financial advice. When investing, your capital is at risk and you may get back less than invested. With commission-free brokers other fees may apply. See terms and fees. Past performance doesn’t guarantee future results.
What is the cheapest stocks and shares ISA available?
The investing world can be complicated, but this time we have a simple answer for you.
Right now the cheapest stocks and shares ISA is the DIY option from InvestEngine.
InvestEngine is the lowest cost stocks and shares ISA on the market because right now it costs nothing.
Zip! Nada!
Now that’s my kind of price range!
Read on for more about InvestEngine’s share ISA.
Cheapest stocks and shares ISA: good to knows
InvestEngine’s ISA costs zero for annual fees, dealing charges, FX fees, entry/exit levies and most of the other multi-headed investment costs that snap at our wallets like a financially-incentivised Hydra. (It’s little known that the Ancient Greek polycephalic snake-beast was on a bonus scheme. Fifty drachma per hero slain.)
The only costs you will pay are the usual Total Expense Ratio / Ongoing Charge management fees that must be borne when investing in any fund, plus trading spreads. So far, so standard.
The platform’s downside is that its range of ETFs is more restricted than costlier platforms, and you can only trade at fixed times per day.
Frankly though, I think that’s a reasonable trade-off. Especially because you can easily create a good investment portfolio from the ETFs available.
Read our full InvestEngine review. We like it. Just make sure you choose the DIY ISA, not the managed one.
Our only concern is how long can the service remain free?
We’ve previously investigated how zero commission brokers make their money. In InvestEngine’s case, it’s mostly hoping you’ll opt for its paid managed offering.
Cheapest stocks and shares ISA: alternatives
There are plenty of other commission-free brokers out there now including Freetrade, Lightyear, Prosper, Trading 212, and IG. Prosper and InvestEngine don’t charge FX fees, the rest do.
This piece explains how you can avoid FX fees using ETFs.
Some Trading 212 users also report paying higher bid-offer spreads on their trades than may be the case on other platforms.
It’s very hard for us to know if they’re right, but no platform can afford to offer its services for free. They all have to make money somehow. They will usually tell you how they do it if you search: “How does ‘Broker X’ make money?”
Cheap stocks and shares ISA hack
What if InvestEngine’s prices creep up, or you don’t like its pool of ETFs, or you want an alternative because you’re concerned about the FSCS investor compensation limit of £85,000?
In that event let’s recap our cheap stocks and shares ISA hack. It still delivers tax shelter satisfaction for an exceptionally low cost.
Here’s how the hack works:
- You begin by drip-feeding into your stocks and shares ISA with the best-value percentage-fee broker on the market.
- Once your ISA is full you transfer it to the cheapest flat-fee broker.
- You don’t buy and sell your investments at the flat-fee broker. You only trade (for zero commission) on your percentage-fee platform.
- In the new tax year, you open a fresh stocks and shares ISA with the percentage-fee broker.
- Rinse and repeat.
You now enjoy a best-of-both worlds deal that takes advantage of the brokerage industry’s niche marketing strategies.
Percentage-fee platforms offer the best terms to small investors. They tend to rake it in once your account swells beyond £25,000 to £50,000. They’re relying on your inertia.
Flat-fee brokers offer good rates to large investors. They hope to make it up in trading fees. They’re relying on high rollers who treat their portfolios like a night at the casino.
You can arbitrage these cost models, provided you’re active in transferring your ISA and then near-comatose once you’ve parked it at your long-stay platform.
Cheap stocks and shares ISA hack in action
AJ Bell Dodl offers the cheapest percentage fee stocks and shares ISA.
It charges 0.15% on the value of your assets (£1 per month minimum) and zero for trading fees. 1
Were you to drip-feed your ISA allowance in evenly (£1,666 every month), you’d pay approximately £18 in platform fees for the year.
Leave your assets with Dodl forever though and it’ll keep charging 0.15%, which will add up. For example, you’ll pay £150 per year when your account has accumulated £100,000.
But you’re not going to hang around.
Instead, you transfer your ISA to the most convenient flat-fee platform for long-term stashing. There’s a few choices but the cheapest is Scottish Widows Share Dealing (formerly iWeb).
Scottish Widows charges a quite reasonable £0 for platform fees.
Dealing commission is much less competitive at £5 a throw. But we’re not trading there so we plan to pay pretty much zero pounds to Scottish Widows.
- Total cost of your stocks and shares ISA per year = £18 approx.
Not bad! Better still, Dodl currently waives its fees for the first 12 months when you open a stocks and shares ISA. (Dodl calls it an ‘investment ISA’.)
Once your ISA is full, just transfer it out. You can do so whenever you like – for example after you’ve paid in your last contribution during the current tax year.
Open a fresh stocks and shares ISA with Dodl on new tax year day (6 April) while your old one is lodged with Scottish Widows, gratis.
Before you transfer, make sure your Dodl portfolio holdings are tradable at Scottish Widows.
You don’t want to have to sell out of the market and then buy your portfolio again when it arrives at its new home.
Even if you’ve opened other ISAs this tax year, you can still activate a new stocks and shares ISA with Scottish Widows.
Arguably, you can do so even if you’ve maxed out your annual ISA allowance, as Scottish Widows doesn’t require you to fund your stocks and shares ISA with it.
Low-cost stocks and shares ISA: alternatives to Dodl
Dodl is AJ Bell’s spin-off app-only brand. The snag – apart from that app-only business – is its investment list is quite restricted.
The essentials are all there: a good global tracker fund, government bond funds, a gold fund, and money market option. But you’re not exactly spoilt for choice.
To access a wider range of funds check out:
- Barclays Smart Investor
- HSBC Global Investment Centre (HSBC funds only)
- Trinity Bridge
All three charge 0.25% on the value of your assets and nothing for trading fees – so long as you stick to investing in funds.
- Total cost of your stocks and shares ISA per year = £27 approx.
You’ll incur trading fees if you stray into other investment types.
Alternatives to Scottish Widows
You’d expect to pay £36 a year for your investment ISA at Halifax or Lloyds Share Dealing. (They’re the same firm).
Trades cost extra at these brokers – but you’ll do your buying and selling at Dodl.
Sitting on a £20,000 investment ISA at Dodl costs you £30 a year alone. Plus another £18 on top as you build up your current tax year’s ISA.
Still, the bottom line is that InvestEngine and (other zero-commission brokers) offer the cheapest stocks and shares ISA option. The Dodl / Scottish Widows combo places second in most scenarios if you make monthly trades.
The other main compromise with Scottish Widows is its website is basic. Reviews on the likes of Trustpilot are distinctly average.
It’s a bare bones offering so don’t rock up expecting five-star customer service.
But I’ve personally dealt with what was iWeb for many years and found it to be perfectly acceptable. Plenty of Monevator readers say the same.
Note: accounts held with Halifax / Bank Of Scotland, Lloyds Bank, and Scottish Widows count as one for the purposes of the FSCS investment protection scheme.
Look mum, no transfers
If you hate the idea of filling in transfer forms then you can make the entire hack work at a slightly higher cost at Fidelity:
- Buy funds monthly for zero trading fees while racking up platform fees at 0.35% per annum.
- Once you hit the breakeven point, sell your funds and buy as few ETFs as possible to reconstitute your portfolio at £7.50 a trade.
- Fidelity caps ETF fees at £90 per year.
- Beware: you have to buy funds monthly using Fidelity’s regular savings plan to enjoy the 0.35% charge. Otherwise, they’ll smack you up with a £7.50 a month minimum fee.
If you can invest monthly, there’s no need to worry about ISA transfers with this scheme. The entire dosey-doe happens within your Fidelity stocks and shares ISAs.
It works because Fidelity act as a percentage-fee/zero commission broker with funds, and a flat-fee broker with ETFs.
Do it all with Scottish Widows
Yet another option is to hold your ISA with Scottish Widows and only ever buy monthly using its regular investment plan.
- Total cost of your stocks and shares ISA per year = £0
You will incur dealing fees at £5 per trade if you ever want to sell a holding – for example to rebalance. But this is still a great option if you’re as active as a koala after a heavy lunch. 2
For cheap fund and ETF ideas check out our low-cost index fund page.
Tidying up the loose ends
All the cheap stocks and shares ISA options laid out above handle ISA transfers free of charge.
You need to transfer your investments in specie (so they’re not sold to cash) to avoid paying dealing fees to your flat fee broker at the other end.
In Specie or re-registration transfers mean you don’t have to worry about being out of the market either.
Check your new broker offers the same funds and ETFs as your old one.
Invest in accumulation funds and ETFs from the beginning. This will save you paying to reinvest dividends at the flat-rate broker.
I’ve ignored rebalancing costs once you’re all parked up at your cheap platform. A small investor should be able to rebalance with new money. Anyone with an embarrassment of riches can set their rebalancing alarm to once every two or three years. That gives you just as good a chance of being up on the deal as any other rebalancing method.
Or you could invest everything in a Vanguard LifeStrategy fund. LifeStrategy is a multi-asset fund that takes care of rebalancing for you.
Either way, rest assured this manoeuvre does not contravene the stocks and shares ISA rules:
- You can have as many stocks and shares ISAs as you like.
- Transferring old ISA money or assets does not use up your ISA allowance for the current tax year.
- So every tax year, you can open a new ISA at the percentage-fee broker, and ship last year’s ISA to the flat-free broker.
- You can transfer any amount of your previous years’ ISA’s value. You can transfer the whole lot into one ISA, or transfer a portion of it into several ISAs, or any other combo you desire.
Read more on stocks and shares ISA transfers.
See how to calculate your cheapest platform option.
Our broker comparison table tracks the UK’s best platforms.
Cost shavings
If you truly want the cheapest stocks and shares ISA possible then you’ll need to factor in the cost of the low-cost index funds and ETFs available on any platform versus those available through Dodl.
Paying slightly higher OCFs than necessary could overwhelm your platform fee / dealing fee savings.
Also, none of this takes into account the value of your time spent filling in forms. Although when you’re getting this anal then maybe that’s a net positive. (A person’s gotta have a hobby!)
Take it steady,
The Accumulator
Note: this article on the cheapest stocks and shares ISA was updated in Spring 2026. Comments below are kept for posterity and general interest but may refer to old charging schemes, so please check when they were posted.
I have devised a new strategy for beating the stock market. All you have to do is own gold. Because gold has outperformed World equities for the past 30 years for UK investors!
Surprised? Well check out the annualised returns:
| Time horizon | Gold (%) | World equities (%) |
| One year | 40.2 | 9.1 |
| Five years | 11.4 | 7.2 |
| Ten years | 11.9 | 9.6 |
| 20 years | 9.2 | 6.7 |
| 30 years | 6.1 | 6 |
Data from The London Bullion Market Association, and MSCI. February 2026. All returns quoted in this article are inflation-adjusted total returns (GBP).
Gold is killing equities by four percentage points a year for the past five years. Though that’s a bit short term for my liking – so how about 2.5 percentage points a year for 20 years?
That’s a lot. It looks like this:
Granted, the return differential is marginal if you go back 30 years: 6.1% gold plays 6% equities. But gold is still ahead.
Plus it’s having an awesome year to date!
If gold keeps going, or the so-called AI bubble pops, then the yellow metal’s lead will spread further back into the historical record like an ink stain soaking through paper.
How long is the long term?
By the yardstick of the average mortal investor, 30 years is a pretty compelling time horizon. It certainly sounds like a long stretch for one asset to have the whip hand, no?
Don’t these numbers also call into question that story about gold basically being a shiny Ponzi scheme?
Well yes, I do think that view is too dismissive. I believe gold is worthy of its place in our portfolios.
But in my opinion the long-run performance figures above are more misleading than clarifying.
It’s not because gold beats equities that it’s useful. It’s because it repeatedly rides to the rescue when stock investors are in despair.
Gold also has a penchant for coming good during periods of uncertainty not unlike the one we’re living through now…
Golden years
The first thing to note though is that gold’s returns are highly sensitive to your chosen start date, which muddies the waters no end.
Here are three reasonable long-term baselines for comparing gold against other assets:
| Time horizon | Gold (%) | World equities (%) | Baseline |
| 51 years | 2.8 | 6.8 | Gold price fully liberated in 1975 |
| 56 years | 4.8 | 5.2 | MSCI World Index inception |
| 126 years | 1.4 | 5.6 | Dawn of the 20th Century |
Inflation-adjusted annualised total returns (GBP).
If I wanted to press the case against gold then I’d quote the 126-year timeline above, and neglect to mention the price was heavily regulated before the shackles finally came off in 1975.
On the other hand, if I was a total gold bug then I’d shout about gold and equities being neck-and-neck over 56 years.
Pick the compromise date of 1975 though and order is restored. Gold has some value as a minor diversifier, while equities remain paramount.
But their relationship is really more complex than that – and a fortuitous one for investors.
Sheer doubloon-acy
The next thing to put on the table is the 31-year mega gold drawdown:
Gold sank 78.3% over 19 years from 1980 until 1999. Buyers sucked in by gold’s 77.6% gain in 1979 (98% nominal!) didn’t break even again until 2011.
That loss weighs heavily on gold’s track record. It distorts average returns around it like a black hole bends light.
So if I pick a long-term comparison date that veers too close to that event horizon, then gold looks weak.
On the other hand, gold’s average return ticks up when observed at sufficient distance from the super-massive scary-thing pressing upon investing space-time.
Both outcomes are true, relative to the observer – as the next chart shows:
Trend lines show inflation-adjusted cumulative total returns (GBP) to 31 December 2025.
A gold investor who went all-in on New Year’s Eve 1979 (green line) would not be as happy as one who entered the market on New Year’s Eve 1969 (yellow line). Meanwhile Mr New Year’s Eve 1999 (purple line) would still be partying like Prince himself.
The upshot? Your entry point matters – as I believe The Purple One knew only too well.
The green line is the path taken by the performance-chaser who piled into gold near its 1980 peak. Notice how this sucker got hammered by gold’s mega drawdown for the first 20 years. Recovery only begins in late 1999. Eventually – more than 25 years after the comeback begins – Mr Green looks back on 2.4% annualised returns.
By contrast, the yellow line enjoys a decade of growth before giving up most (but not all) of its early gains to the 1980-99 abyss. A quarter of a century later, Colonel Mustard or whoever this is, has come through it all to post highly-respectable 4.8% annualised returns.
Finally, gold’s galactic collapse is but a historical curiosity to the purple-lined investor. For them, it’s onwards and upwards to a glittering 8.8% annualised return.
Of course, every asset’s returns are path dependent. But gold’s outcomes can be particularly divergent. Which helps explain why gold ownership is so divisive, and why some are fanatical about it and others indifferent.
In short, it’s why gold tastes of Marmite.
Crisis management
The next chart shows more clearly why gold is worth owning (I hope). See how the yellow line zigs when equities zag:
Gold and equities are both volatile as hell. They’re also extremely careless: losing decades all over the shop.
But for over half-a-century they’ve counterbalanced each other remarkably well.
In fact, nothing else has compensated as effectively as gold for equities’ worrying habit of going nowhere for years.
Meanwhile, equities typically buck up as gold spirals down.
Here’s the numbers for the lost decades for each asset shown in the chart above:
| Lost decades | Equities return (%) | Gold return (%) | Peak loss (%) | Offset at peak loss (%) |
|---|---|---|---|---|
| Dec 1972 – Dec 1984 | 0 | 144.1 | -56.1 | 191.5 |
| Jan 1980 – Jul 2011 | 655.7 | 0 | -78.3 | 665.2 |
| Aug 2000 – May 2014 | 0 | 201 | -50.7 | 8 |
| Oct 2011 – March 2020 | 104.1 | 0 | -40.2 | 53.6 |
Gold counters equities losses, equities counter gold. Inflation-adjusted cumulative total returns (GBP).
Gold returned 144% when equities went sideways for 12 years from 1972 to 1984. During that period, equities losses hit -56% in April 1980. But gold was up 191.5% at the same time.
The rest of the table repeats the same story. You can see how equities counterbalance gold’s peak losses, and vice versa. (Equity drawdowns are shaded in the table and gold’s aren’t. ‘Offset at peak loss’ is the gain of the countervailing asset when the ‘lost decade’ asset registers its worst loss.)
Driven to extraction
As that last table shows, gold refutes the old market adage: all correlations ‘go to one’ in a crisis.
Clearly gold brings its own bag of troubles along with it. But happily, equities help you bear those in turn.
Of course there are no guarantees. Gold wasn’t the best diversifier during the Dotcom Bust. It also dipped 30% initially during the Global Financial Crisis (GFC) before finally answering the alarm call.
There’s almost bound to be a financial disaster eventually that features gold and equities sliding together.
So I’m not arguing for the 60/40 portfolio to be recast as 60/40 split between equities/gold. But I am saying that gold has a solid role to play in smoothing the returns of a well-diversified modern portfolio alongside more traditional bedfellows like bonds and cash.
And yet, I still have my reservations…
Yellow alert
If you view your portfolio assets in isolation – rather than as part of a balanced team – then gold can be hard to live with. Not now, when it’s going gangbusters, but whenever it next fails to shine.
That time will come, probably quite soon, because gold is sickeningly volatile as we saw in the chart above. It’s even more of a rollercoaster ride than equities.
For example, 39% of gold’s annual returns were negative from 1970 to 2025. As opposed to just 28% of years being down for equities.
Moreover gold spent 31 years underwater up until July 2011. It then rose to new highs for all of three months before diving back in the red – where it stayed for another nine years!
Essentially, gold was underwater for over 39 years between 1980 and 2020. (While paradoxically saving the day during the GFC. So again, it depends when you bought in.)
In sum, the barbarous relic is even more painful to own than World equities as a standalone asset. If you can’t handle having your patience sorely tested, then forget about owning the yellow metal.
However, if you are willing to hold an asset for its strategic value – as opposed to highly uncertain short-term profits – then consider allocating a chunk to gold.
So metal
I’ll close out with the latest in a series in which Warren Buffett says in a couple of sentences, 20 years ago, what I struggle to say in a thousand words today.
Here’s a wonderful gold quote from the old maestro that encapsulates the dilemma:
Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.
I completely buy that. You can see from the last chart that gold spikes in eras of great turmoil, when confidence crumbles in the system itself: the Oil Crisis of 1973-74, the Second Oil Crisis of 1979, the GFC, and close cousin the European Sovereign Debt Crisis.
Which brings us up to the current era of instability, which some characterise as a polycrisis. (Sounds more like a depressed parrot to me.)
If you think we’re heading for an age of peace, prosperity, and political harmony, then gold should be redundant. But personally I’m happy to wager 10% of my portfolio on fear.
After all, it looks like fear gains the upper hand quite often:
Take it steady,
The Accumulator
What caught my eye this week.
One thing crowdfunding investors should be used to is losses. At least 75% of start-ups fail, and I haven’t seen any evidence of those firms that turn to a whip round from ordinary investors bucking the trend.
Unfortunately, my sense is that most crowdfunders who chip in to back a company – especially those who put more money in than they should – too often don’t appreciate such statistics.
That’s partly because every person I’ve ever spoken to about their crowdfunding only backs a few companies. Often only one!
And as I’ve written before about venture capital investing, spreading your money around is the best way to try to get any sort of credible return. At least in financial terms.
What other kind of returns are there, you might retort?
Indeed it’s a fair – if I’d suggest rather too narrowminded – view to say there aren’t any.
However it’s obvious that many of the people who invest in the likes of supposedly-alternative beer company Brewdog do so for non-financial reasons.
Perhaps it’s for the investor perks and freebies. Maybe they like feeling they’re part of something, or that their money is helping to build a brand new company rather than just shuffling share ownership around.
With Brewdog case I’m sure some even believed they were sticking it to the man…
Downward dog
Alas, Brewdog was flogged off this week for parts. According to the BBC:
US beverage and medical cannabis company Tilray has bought the company’s UK brewing operations, brand and 11 pubs in a £33m deal.
Administrators said the sale had preserved 733 jobs – but that 484 jobs had been lost and 38 bars had closed after they were not included in the rescue deal.
And they said no equity holders – including those who invested in the brewer’s Equity for Punks scheme – would get any return from the deal.
Now there are several aspects to this story that do stick in the craw.
Unite says workers were treated very shabbily. Management of the company has been controversial for years, and neither the decline in Brewdog’s fortunes nor its ignominious end will have repaired any reputations.
As for investors, as the BBC tells us:
In 2009, the firm launched a fundraising scheme called Equity for Punks.
About 200,000 people put money into the scheme, which offered a stake in the company, discounts and perks. The investors typically spent about £500 on shares costing £20 to £30 each, although others invested larger sums.
Before it closed to new investors in 2021, Equity for Punks is said to have raised £75m which was used to expand the business into an international brand. In 2017 a US equity firm TSG Consumer Partners acquired a 22% stake in Brewdog.
But unlike the Equity for Punks’ “ordinary” shareholders, TSG was given “preference shares”.
That meant that if Brewdog was sold, TSG was first in the queue to get back its investment plus any return owed, possibly leaving little or nothing for small investors.
One thing not mentioned in this summary is Brewdog’s 2020 valuation – the last time it secured ‘Punk Equity’ money – of £1.8bn. This raised a further £30m.
From nearly two billion quid to a fire sale in six years is some going – even for a post-Covid collapse.
Dog days
I’m not going to dissect Brewdog’s swan dive today. Another BBC article offers an even-handed overview.
I would note though that Brewdog is far from the only then-bright-and-shiny company to have achieved a batshit valuation in the weird pandemic era, only to shortly afterwards see things turn south faster than Scott of the Antarctic on the whiff of a Norwegian.
However I do get a bit dismayed by the various stories of woe from Brewdog shareholders.
Of course I’m sympathetic. Nobody likes to lose money, and Monevator is a site for ordinary investors that tries to help them make it, not lose it.
For what it’s worth I had £500 in Brewdog, too. I’d guess I enjoyed about £100 to £150 in perks and discounts. Carrying the capital gain loss forward will save me another £100 or so some day. Call it £300 down the tubes.
Would I rather I hadn’t invested in Brewdog? Yes, of course.
But does losing a few hundred quid on it upset me? Not really – and not because I can’t think of much more entertaining ways to dispose of £300.
Spread manure around
Rather, I’ve invested in dozens of crowdfunded startups (and follow-on rounds) and I fully expect a lousy result from most.
VC returns notoriously go to a few winners. That is what I am seeing in my own portfolio and what shapes my strategy.
As a counterpoint to Brewdog, I recently liquidated a portion of a private company holding that – after tax relief – has returned over 30-times my investment. That sort of return covers a lot of failures.
This isn’t to brag. Not least because I haven’t a lot to brag about! As I said, there have been a lot of failures to cover. Before this recent disposal I was slightly underwater on a ‘money out’ basis.
My ongoing portfolio however is valued at 2-3x the money I invested. Moreover I judge most of those valuations to be pretty sound after a tough few years. (War shocks notwithstanding.)
Time will tell, but for me this experimental allocation of a small portion of my capital is looking like it’ll deliver tracker fund returns for a lot more work – but, for me, more fun and interest too.
How to lose money responsibly
We can debate whether I should get out more, given that I consider this sort of thing to be fun.
My point though is that this isn’t how most people do their crowdfunding.
A majority probably plump a couple of hundred quid into one or two companies, and that’s fine.
But judging by the stories that emerge when things go wrong, too many seem to stick meaningfully large-for-them lump sums into start-ups that they feel some affinity for, and they often don’t appear to anticipate the downsides. As such they take on far more risk than they should. Sometimes with woeful outcomes.
That is dispiriting. It has me wondering if individual investment sizes should be capped, say, on top of the existing ‘sophisticated investor’ tests that supposedly restrict the sector.
However I wouldn’t like to see crowdfunding regulated away. I think there’s something to be said for democratising capitalism in its rawest sense this way.
And for what it’s worth there are (a small number of) backers in the likes of Revolut who have made truly life-changing sums of money. I know some read this blog.
But if you’re tempted to try crowdfunding I’d suggest you:
- Invest only what you can afford to lose in any one company. Because you probably will.
- By all means back firms you find inspiring or fun. But understand that is part of your return.
- Ditto the perks and discounts. They are nice to get but they also might be all you get.
- Either invest very small amounts of money (for you) in a few companies you really like, or adopt a VC approach and spread it widely. Don’t put big chunks of your net worth into companies that are statistically very likely to go bust.
- Don’t get involved with crowdfunding unless you’re already sensibly saving and investing for your future.
Money for nothing
Plenty of Monevator readers would say my bullet point list should start and end with ‘Don’t Do Crowdfunding’ and I understand that point of view.
From a personal finance and investing perspective, crowdfunding is entirely superfluous. It will more than likely leave you needing to find and save more money to make up for the losses it delivers.
But I still see a place for it akin to a carefully budgeted night out in Las Vegas for those who think it seems like an exciting way to lose money – and as a potentially modestly lucrative hobby for a minority.
Just please please don’t confuse it with proper investing for your long-term financial security.
Have a great weekend!
Okay, so you know your inc from your acc. But do you know your retail from your institutional? Your dirty from your discounted? Your clean from your super-clean?
I am, of course, talking about fund share classes. The hottest topic at dinner parties across the land.
Where did they all come from? What do they do? Does it even matter?
Let’s start with the basics and work up.
The basics
An investment fund may have many share classes or unit types. Each share class will be invested in the same assets but may vary by:
- Whether dividends are paid out in cash (inc, for income) or accumulated in the unit price (acc)
- The level of fees – initial and ongoing
- The trading or hedging currency
Note, we’re only talking about investment fund share classes. Listed companies can also have varying share classes, but that’s a different kettle of fish.
An investment platform may only allow you to invest in a subset of the available share classes. For instance, you’ll usually only get one trading and (if applicable) hedging currency. It should be clear from the fund name which one you are investing in.
Next some examples. (Share class data is from Trustnet.)
Vanguard LifeStrategy 60%
This perennial Monevator favourite is admirably straightforward. Just two share classes – one inc and one acc – and no fee variation:
| Name | Ongoing Cost |
|---|---|
| Vanguard LifeStrategy 60% Equity A Shares Acc | 0.20% |
| Vanguard LifeStrategy 60% Equity A Shares Inc | 0.20% |
Rathbone Global Opportunties
Less relevant to your average passive investor but a popular fund nonetheless, Rathbones Global Opportunities also has just two share classes. But this time the difference is in the fees:
| Name | Ongoing Cost |
|---|---|
| Rathbone Global Opportunities Fund I Acc GBP | 0.77% |
| Rathbone Global Opportunities Fund S Acc GBP | 0.51% |
An investment platform will typically only support one of these share classes, but not necessarily the same one as other platforms:
| Platform | Share Class |
|---|---|
| Hargreaves Lansdown | S |
| Interactive Investor | I and S |
| Scottish Widows (née iWeb) | I |
| Fidelity | S |
| AJ Bell | I |
iShares Environment & Low Carbon Tilt Real Estate Index
This last example is a constituent of the Monevator Slow and Steady portfolio. It really is a smorgasbord (as Ms Reeves would say):
| Name | Ongoing Cost |
|---|---|
| iShares E&LC Tilt Real Estate Index H Acc | 0.17% |
| iShares E&LC Tilt Real Estate Index S Inc | 0.11% |
| iShares E&LC Tilt Real Estate Index X Inc | 0.02% |
| iShares E&LC Tilt Real Estate Index L Acc | 0.22% |
| iShares E&LC Tilt Real Estate Index H Inc | 0.17% |
| iShares E&LC Tilt Real Estate Index S Acc | 0.11% |
| iShares E&LC Tilt Real Estate Index X Acc | 0.01% |
| iShares E&LC Tilt Real Estate Index D Inc | 0.17% |
| iShares E&LC Tilt Real Estate Index D Acc | 0.17% |
Again, different platforms support different share classes, sometimes for seemingly arbitrary reasons:
| Platform | Share Class |
|---|---|
| Hargreaves Lansdown | S |
| Interactive Investor | D |
| Scottish Widows (née iWeb) | D and H |
| Fidelity | D and H |
| AJ Bell | D |
Classes D and H vary only by the initial charge – it’s usually waived by the platforms, so it won’t make any difference in practice.
A brief history of share classes
Back in the ‘good old days’, adviser commission was usually bundled in the cost of a fund for retail investors. Thus, annual fund fees were often around 1.5%, with half going to the adviser or, if you didn’t have an adviser, just swallowed by the fund provider along with its own cut.
If you were lucky and invested via one of the then-emerging fund supermarkets or platforms, you could get a cash kickback – effectively giving you back a portion of your own money.
Good times!
Then, at the end of 2012, legislation known as RDR came along and spoiled the fun. Bundled adviser fees and cash kickbacks to platforms were banned. The old retail or bundled (aka ‘dirty’) share classes were phased out. Individual investors were given access to the institutional class – or ‘clean’, as it was free of commission.
But some platforms (notably Hargreaves) still wanted to negotiate a discount on fund fees.
In response, as well as the clean share class, fund providers started launching discounted, or ‘super-clean’ share classes, with a few basis points shaved off the fees.
Where will it all end?
In the years after RDR, the number of share classes ballooned as different platforms secured different deals.
Over time though, things have begun to simplify again. The old retail share classes have disappeared. The discount levels have narrowed.
Terms like bundled, clean, and super-clean are all pretty much meaningless now. Just relics of history.
Maybe we’ll eventually end up with the Vanguard model, with just a pair of inc/acc share classes and one level of fees for everyone.
But for now you may need to navigate multiple options, and slog though the fund details for more info.
So which one do I want?
First, decide between inc or acc. That is, do you want some regular cash income or would you prefer to keep it all rolled up in your growing investment?
(Consider the tax complications outside of ISAs and SIPPs before making your mind up).
With that, you’re probably done. Your platform will usually offer only one fee level, one trading currency, and one hedging currency, if any, for your chosen share class.
If you do see multiple fee levels then obviously you want the cheapest. But in many cases, even where platforms support multiple share classes, they will steer new investors into the cheapest one anyway.
Stuck in an expensive class?
Sometimes you’re not quite so lucky.
In the Rathbone example above, you’ll see that Interactive Investor supports both the I and the S class. This is probably because it initially supported the more expensive I class, but later successfully haggled with Rathbones to get access to the cheaper S class.
While new investors are now funnelled into the cheaper S class, old investors are left languishing in I with the extra fees.
If you’re such an existing investor, then what you need is a conversion.
Conversions
A conversion is a transaction that converts a holding in one share class to another share class in the same fund.
A conversion is not a switch. The change from one class to another happens at a single point in time. The holding is not sold and then invested again.
This distinction matters. A switch means you may be out of the market for a short time and subject to the vagaries of swing pricing (where dealing costs could move the price against you). With a switch, it would be easy to lose more from adverse price swings than you’d ever save in lower fees.
A conversion does not present these risks.
A conversion will also not trigger any capital gain. Neither should a switch as long as the underlying fund is the same, although it may result in some confusion, for instance on book costs and equalisation (as raised in the comments to my article on transfers.)
Why don’t we just convert then?
Because your platform probably won’t let you.
I don’t know of any mainstream investment platform that enables an investor to convert an existing holding (even though they can process conversions, as we will see shortly).
The last time I tried calling my platform to request a conversion, the administrator patiently explained to me what a switch was, as if talking to a small child. I got nowhere trying to explain the difference.
Perhaps, as the number of share classes continue to be rationalised, this problem will become rarer. But as a cost-obsessive Monevator reader, it’s irritating if you’re the unlucky one who gets stuck with unnecessary extra fees.
The transfer problem
Imagine you had a holding in the iShares real estate fund above at Interactive Investor (in the D class) and you want to transfer in-specie to Hargreaves Lansdown (which only supports S).
You can’t simply re-register the units across as you would if it was the same share class. You need someone to do a conversion.
It is ironic that, whilst RDR forced platforms to support in-specie transfers, it also prompted a flourishing of different share classes that made many in-specie transfers impossible.
This problem required more rule changes from the FCA (Making Transfers Simpler, introduced in 2019) to fix the problems created by the earlier policy.
Platforms must now convert share classes where necessary to complete an in-specie transfer and then move the investor to their cheapest share class.
So today you generally don’t need to worry about share classes when transferring. Either the old platform will convert before transfer, or the new platform will convert afterwards – or both.
A convoluted conversion
It’s frustrating. Platforms can process conversions but choose only to do so for transfers where the regulations insist on it.
However more cunning readers may have already spotted a decidedly convoluted workaround.
If, in a situation like the Rathbones example above, your platform won’t convert your holding to a newer, cheaper share class, then one option is to transfer your account elsewhere and then transfer it back again.
The FCA rules mean that by the time you get your investment back where it started, one of the platforms involved should have converted you to the cheaper class.
I’ve never done this, but I see no reason why it wouldn’t work in theory. In practice, it may well turn out to be too much of an admin headache.
So what?
Maybe you’ve never needed to think about share classes. And maybe you never will. (I know, I waited right until the end to admit it!)
You’ll probably:
- Only need to choose between inc and acc
- Never be given a choice of currencies or fee levels
- Never have to worry about transfers
- Be happy with the share class you’re given
But it’s just possible that you may get stuck in an expensive share class, or have a transfer go awry with share class mismatches. If you do hit a problem then you may not get much sense from your platform helpline – and knowing your share class onions might just help.
Ever been stuck in an expensive share class? Know of any platforms that will process a conversion for you? Ever tried the transfer dodge?! Let us know in the comments below.
Oh – and that bit about share classes and dinner parties? Not true. Don’t try it. Really.
Can’t fit all your investments into your ISAs and SIPPs? Then you’ll reduce your tax bill by following the first rule of tax-efficient investing:
Squeeze the most heavily taxed investments into your tax shelters first.
Happily, the pecking order for maximum tax efficiency is clear cut for most people.
Tax-efficient investing priority list
Shelter your assets in this order:
- Non-reporting offshore funds
- Bond funds, money market funds, UK REITs and PIAFs
- Individual bonds
- Income-producing equities
- Foreign equities (arguable)
To see why this sequence is tax efficient, let’s just tee up the relevant tax rates:
| 2025/26 | Income tax | Dividend tax | Capital Gains Tax |
| Tax-free allowance | £12,570 | £500 | £3,000 |
| Basic rate taxpayer | 20% | 8.75% | 18% |
| Higher rate taxpayer | 40% | 33.75% | 24% |
| Additional rate taxpayer | 45% | 39.35% | 24% |
Dividend income tax will rise to 10.75% (basic rate) and 35.75% (higher rate) from 6 April 2026. The additional rate remains unchanged.
From 6 April 2027, tax on savings income – as paid by money market, treasury bills, and bond funds – rises to 22%, 42%, and 47% for basic, higher, and additional rate tax-payers respectively. The same rate will also apply to property income from 6 April 2027. This is payable by UK REITs and PIAFs but not ordinary REIT tracker funds.)
At a glance we can see that income tax is the nastiest while capital gains tax (CGT) is generally the most benign. Your CGT burden can also be reduced by offsetting gains against losses.
So the plan is to shelter investments that are liable to income tax first, dividend tax second, and CGT third.
A few tax efficiency caveats to consider
Before we get into the guts of it, I’ve got to dish up some caveat pie:
- Interest is taxed at your usual income tax rate until 6 April 2027. Basic-rate payers have a £1,000 personal savings allowance, reduced to £500 for higher-rate payers and nil pounds beyond that.
- A few very low earners qualify for an additional band of tax relief on savings. Up to £5,000 of interest can be sheltered under the ‘Starting Rate for Savings’.
- If your interest, dividend income, or capital gains pushes you into a higher tax band then you will pay a higher rate of tax on the protruding part.
- In that situation, it matters what order you’re taxed in, so you can make the most of your tax-free allowances. The UK order of taxation is: non-savings income, savings income, dividend income, and finally capital gains.
- If you’d like a quick refresher on the tax-deflecting powers of ISAs and SIPPs, just click on those links.
- And if you’re not sure which is best for saving then try our take on the ISA vs SIPP debate. Most people should probably diversify across both tax-efficient investing shelters. But there are a some important wrinkles to think about.
Let’s now look in more detail at – all things being equal – the best order of sheltering assets for tax-efficient investing, starting at the top.
Non-reporting offshore funds
Offshore funds that do not have reporting fund status are taxed on capital gains at income tax rates. And as you can see from the table above, that’s a hefty tax smackdown.
Worse still, your capital gains allowance and offsetting losses are knocked out of your hands by HMRC like the school bully taking your lollipop.
If your offshore fund or exchange-traded product (ETP) doesn’t trumpet its reporting status on its factsheet then it probably falls foul.
It’s worth double-checking HMRC’s list of reporting funds. Many offshore funds / ETPs available to UK investors don’t qualify. Also, it’s possible for a reporting fund to lose its special status.
Any fund that isn’t domiciled in the UK counts as an offshore fund. (Sometimes it’s worth saying the obvious!)
Bond and money market funds
Money market funds, bond funds, and even treasury bills are next into the tax bunker because interest payments are taxed at income tax rates rather than as dividends. (And on the higher ‘savings income tax’ rates from 6 April 2027.)
Any vehicle that has over 60% of its assets in fixed income or cash at any point in its accounting year falls into this category.
However, because these distributions count as savings income, interest payments are also protected by your Personal Savings Allowance (and even the Starting Rate for Savings).
Bond fund capital gains fall under capital gains tax, naturally.
Money market funds typically achieve at most miserly capital gains.
Treasury bills count as deeply discounted securities. Essentially they’re designed to make a capital gain rather than pay interest. But the capital gain counts as savings income.
Our Treasury bill article explains the weirdness.
Starting Rate for Savings – bonus protection
Some people – most likely retirees – can find themselves with low earnings income but reasonable savings income.
Such savings income can be sheltered by the Starting Rate for Savings.
Savings income that sits in a £5,000 band beyond your Personal Allowance may qualify for a 0% rate of income tax thanks to the Starting Rate for Savings rules.
That’s most likely to happen if your non-savings income plus savings income lands somewhere between £12,570 and £17,570.
(The upper limit can be increased if you’re eligible for additional tax-free allowances.)
Beware that every pound you earn (in non-savings income) over £12,570 shaves £1 from your £5,000 Starting Rate for Savings allowance.
So if you earn over £17,570 in non-savings income then you won’t get any Starting Rate for Savings privileges.
Whereas, £14,000 in non-savings income leaves you with another £3,570 in savings income that can be protected using your Starting Rate for Savings.
Any savings income that can’t huddle behind the Starting Rate for Savings barricade can still duck under the Personal Savings Allowance.
All this begs the question: what counts as earnings income?
The main categories are:
- Income from work, whether employed or self-employed
- Pension withdrawals including the State Pension
- Retirement annuities
- Rents
- Taxable benefits
It’s obviously less urgent to get all your bonds into your ISAs and SIPPs if you can earn interest tax-free via the Starting Rate for Savings and Personal Savings Allowance routes.
As mentioned though, bonds can make capital gains. Long to intermediate maturity bond funds are most likely to land you with a significant CGT bill whereas short bonds tend to be more cash-like.
UK Real Estate Investment Trusts (REITs) / PIAFs
UK REITs and PIAFs pay some of their distributions as Property Income Distributions (PIDs).
PIDs are taxed at income tax rates not as dividends. UK REITs and PIAFs will pay higher property income tax rates from 6 April 2027. Those rates will be 22%, 42%, and 47% for basic, higher, and additional rate tax-payers respectively.
Get them under cover for optimal tax-efficient investing. PIDs are paid net so make sure you claim back any tax due if you tax shelter ’em.
REIT tracker funds and ETFs distributions are liable to the standard dividend income tax rate, not the higher property income tax rate.
Individual bonds
Individual bonds are liable for income tax on interest – just like bond funds.
The only reason that bonds are slightly further down the list is because individual gilts and qualifying corporate bonds are not liable for capital gains tax.
We’ve previously delved into the differences between how bonds and bond funds are taxed.
There are also some particularly intriguing low coupon gilts on the market that pay very little interest. Instead, their future cashflows are heavily skewed towards capital gains – which are tax-free.
They’re worth a look if you’re comfortable with buying individual gilts and would like to reduce your tax bill.
Income-producing equities
The dividend tax situation has got a lot worse for UK investors in recent years, so high-yielding shares and funds should duck under your tax testudo next.
By all means prioritise protection for your growth shares if you think CGT is the bigger problem.
But bear in mind you can still defuse capital gains every year – although this mitigation measure is being steadily eroded by the shrinking capital gains allowance – and you can usually defer a sale.
Foreign equities
It isn’t necessarily a priority to get overseas funds and equities sheltered, but there’s a tax-saving wrinkle here that only works with SIPPs.
The issue is withholding tax, which is levied by foreign tax services on dividends and interest you repatriate from abroad.
Sometimes withholding tax will be refunded as long as you fill in the right forms. For example a 30% tax chomp on distributions from US equities becomes a mere 15% if your broker has the appropriate paperwork.
Foreign investments in SIPPs can often have all withholding tax refunded but only if your broker is on the ball (and the appropriate agreements are in place). You’d need to check. ISAs don’t share this feature.
If you hold foreign equities outside of a tax shelter then you can use whatever withholding tax you have paid to reduce your UK dividend bill.
So in the case of US equities, a basic-rate taxpayer could use the 15% they’ve paid in the US to reduce their 7.5% HMRC liability to zero.
In other words, only higher-rate / additional-rate taxpayers should consider sheltering US equities in ISAs from a dividend perspective. (There’s still capital gains tax to think about in the long-term, remember.)
Everyone can benefit from the SIPP trick though.
Bow-wowing out
It only remains to say that this is generalised guidance and tax is a byzantine affair. Please check your personal circumstances.
Tax efficiency is important but whatever happens don’t let the tax tail wag your investment dog.
Take it steady,
The Accumulator
Note: This article on tax-efficient investing has been given a tidy up after a few years out in the pastures. Comments below might refer to previous tax rates and allowances. So do check the date they were posted!
