Dennis,

On the face of it a shares ISA amounts seems no advantage whatsoever to a basic rate taxpayer, as the provider's cut amounts to an additional small wealth tax on investments on which one would otherwise have no liability.

However, my wife and I, both basic rate taxpaying pensioners find a small present benefit and a big future one in holding shares ISAs. (We cashed in all our cash ISAs when the BoE decided to punish savers with near zero returns).

I guess you would call our portfolios decent. We get most of our income from dividends, and arrange our holdings so that one of us (me) escapes the clawback of my age allowance by ensuring that my gross taxable income is just below 22.9k. As there was no chance of holding my wife's income down to this level, she gets the high yielding stocks and I take the low yielding ones. Her income has a little slack in it before she moves into the higher rate band. We also take our gains up to the annual exempt limit every year and reinvest them. If we needed to free up more capital - say - for sheltered housing, we might be glad to have the opportunity to take gains from the ISA.

However, once the first of us dies, the survivor will certainly be stuck with higher rate tax. In the present climate, with inflation a real risk again, that survivor will be glad for one ISA pot, and swap some of his or her higher yielding equities into index linked gilts.

With this in mind we regard the costs of our ISA provider simply as an insurance premium.

Hope that helps.

Tony

Thanks for your response Tony, in my case my wife and I have separate defined benefit company pensions so the ISA pots are something of an icing on the cake and we don't have the (interesting) intellectual challenge/opportunity that you seem to have of optimising everything. By the way are your comments restricted to shares or do you include unit trusts in your response?

Thanks Dennis

Useful,as dividend income from ISAS do not have to be declared when calculating gross income for purposes such as Child Tax Credits,EMA, and keeping one within various tax boundaries.

Hi Dennis.
Another couple of + and - thoughts. I bought into Potash Corp then found that Canada has 15% witholding tax but as I did this in my ISA I am unable to reclaim it and pay instead the UK 10%. Because the divi is small the amount is, frankly, trivial but it is a point of issue that ISAs are supposed to exist as a tax-saving vehicle for UK investors not as a way of supporting foreign governments.
On the + side stocks held in an ISA don't have to be declared so if you are a frenetic trader you can do it as often as you like and not have to worry about keeping check of the value of your trades. I no longer know what the figure is but you used to have to declare in the CGT pages if you exceeded a certain limit even if not above the gains threshold.
For most folk these matters will not be an issue so I am now in the process of selling out of stocks and into interest-bearing stocks in the ISA. I use Selftrade which now has a flat fee covering all accounts so as there is no extra cost involved I might as well use my full annual allowance if only as a way of future-proofing as per Tony Peterson.
I agree with Tony about the effect of charges but there are some markets aren't easily accessed (eg China, Gold Juniors) so I use funds for these via Hargreaves Lansdown. By the way their SIPP is great for funds but their share and bond dealing charges are too high so I intend transferring some to Selftrade for their flat rate £12.50 dealing charge.
Interesting thread.