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One of the main differences in the types of accounts is to do with Tax treatment and as such they will change by tax jurisdiction, Therefore the information I am listing here is related to the UK Tax area only.
The first two accounts Traditional and Nominee can be grouped together as Non-Tax Efficient accounts, neither of these accounts offer any tax relief on your savings.
Traditional Broker Account (Paper Certificate)
Before the proliferation of the internet and the digital Revolution most shares were held physically in paper form either by yourself or by your broker.
With this type of broker account you request for your broker to make a deal they will then purchase the shares and the companies register of stockholders would be updated and a new paper certificate would be dispatched to you to show your ownership, after this point all correspondence will be directly from the company to the shareholder with the broker only being involved when you wish to sell.
Traditional Brokerage is now likely to hold the shares in CREST (The UK's security settlement system) which allows direct ownership but with the advantages of same day clearing and faster confirmation of the deals.
Nominee Account
These days most shares of small holding share owners are owned through brokers electronically in what is known as a Nominee Account. The advantages of the Nominee Account is that the shares are traded and cleared a lot sooner, as you do not hold the shares directly then you are known as the beneficial owner where as the broker is the nominee owner. Technically the Broker remains the owner of the shares so all decisions that are owed to you as the owner are passed to you through the broker rather than coming from the company directly.
Forms of tax efficient accounts include
ISA - Individual Savings Account
The Individual Savings Account (ISA) is probably the most important of tax efficient savings accounts and I have never heard any advice different to filling your ISA before thinking about using any other account. Shares saved in an ISA are free from paying Capital Gains Tax (If you are over the CGT threshold) and Income Tax (Only payable for higher rate tax payers.)
The ISA comes in two types, Cash or Stocks and Shares, each year the government sets a limit to hhow much can be invested in ISA accounts per person. The amount for 2014 is set to £11,520 of which half (£5,760) can be stored in a Cash ISA.
You can combine a Cash ISA with a Stocks and Shares ISA so you could have £5,760 in each or any proportion as long as you do not exceed the total limit or have more than 50% as cash. The other thing to remember with an ISA is that the limit is money paid in regardless of what is withdrawn so if you pay in £6,000 and then withdraw it you will be unable to repay it all in as it would be over the total ISA Limit.
An ISA is a flexible account as subject to the account providers terms and conditions there is no limit to when you can withdraw the money and it is entirely tax free.
SIPP - Self Invested Personal Pension
A second type of tax free savings account is the SIPP, The SIPP as the name suggests is essentially a pension plan that is managed by you rather than by a fund manager. As it is a pension plan the money paid in is not available for withdrawing until you are at least 55 years of age, at 55 you have the option of withdrawing up to 25% of the balance tax free as a lump sum with the option of using the remainder to purchase an annuity to provide a retirement income or to start drawing down the SIPP as an income. All income that comes from a SIPP is taxable at the usual income tax rates.
Although you pay income tax on the money withdrawn from a SIPP the main tax advantage is that the money placed in is pre-tax, so if you are a standard rate tax payer (20%) you will get £1,000 for ever £800 you put in and if you are a higher rate tax payer you can also claim a further 20% relief on your tax return.
So as an example if a higher rate tax payer wanted to invest £1,000 in a SIPP he would pay £800 to his broker who would request the additional £200 tax relief from HMRC giving him £1,000 to invest. When he fills out his self-assessment (providing that he has paid more than £200 of higher rate tax) he can claim an additional £200 of his tax liability.
SIP - Share Incentive Scheme
The SIP is a specific shares scheme operated by a company for their employees. Only share schemes that are approved by HMRC are SIPs and valid for tax relief. A SIP can include Free Shares, Partnership Shares, Matching Shares and Dividend Shares.
Free Shares: A company can give up to £3,000 a year worth of free shares per employee, The shares can be given free of tax, if the shares are removed less than 3 years after being awarded then Income Tax and NI is payable at the current market rate. If the shares are removed between 3 and 5 years of the award date then the shares are taxed at the lower of the value of when they were awarded and when they were sold. If they have been held over 5 years then there is no tax payable.
Partnership Shares: These shares are bought by the employee with pre-tax pay (Also known as salary sacrifice) There is an annual limit of £1,500 each year that can be used to purchase partnership shares. The tax implications are the same as for free shares so holding them for over 5 years will result in no tax to pay.
Matching Shares: These shares can be awarded by the company for each partnership share that is bought up to a rate of 2 matching shares for each partnership share. Matched Shares can only be awarded if the Employee remains employed by the company for three years after the award date. They will also be liable to tax if removed from the scheme before 5 years after the award date.
Dividend Share: These shares are the reinvested company dividends, like the matched shares they can not be removed from the scheme less than 3 years after the award date unless you leave the company, unlike the other shares in the SIP there is no Income Tax or NI paid on these shares regardless of how long they have been held.
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