Investing in smaller companies

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9. A note about tax

For most people, the choice may be a self-select ISA, where you are the "fund manager" of your money and 'self-select' the shares that are in the fund from a wide range that qualify for inclusion. This includes all small caps listed in the UK, but not AIM or OFEX shares.

Capital gains made on the sale of shares held within self-select ISAs are entirely free of capital gains tax. So if you invest £1,000 in a company and the shares rise five-fold, you could withdraw all the £4,000 profit without paying any tax. If the shares were held outside an ISA, the taxman would be looking for capital gains tax on the gain, depending on your tax bracket and whether you decided to reinvest elsewhere in a qualifying investment to avoid tax.

Consider using all your family's ISA allowances. Your spouse and children over the age of 18 are each entitled to open an ISA. Each ISA can have £7,200 of new capital subscribed into it each tax year for investment in shares. Children over the age of 16 can invest £3,600 per year in a mini cash ISA.

If you are in any doubt about your tax position you should consult an Independent Financial Advisor.

1. What is a small cap? 2. The arguments in favour of smaller companies 3. The arguments against smaller companies 4. The aim of investing in smaller companies 5. No single method 6. Is it a good business? 7. Can you buy at a reasonable price? 8. Penny shares and other speculative stocks 9. A note about tax 10. Other tips 11. Conclusion

• Investor's Guide To Selecting Shares that Perform