Think of a stock and shares ISA as an umbrella. But instead of sheltering you from the rain, it shelters your investments from tax bills. Unlike a cash ISA, which adds an amount of interest every year, a stocks and shares ISA invests your money in the markets. So the value of your ISA depends on the performance of those investments.
If you’re comfortable with risk and tucking your money away for a longer timeframe, they can offer potentially bigger gains than a cash ISA – especially when savings rates are below inflation. And with no UK income tax, capital gains tax or tax on dividends to pay, you could be looking at even higher returns for a rainy day.
How do stocks and shares ISAs work?
A stocks and shares ISA lets you put your money into investments whose value depends on market conditions. One benefit of a stocks and shares ISA is flexibility. You can choose a from a range of assets like investment funds, stocks, shares, bonds and exchange traded funds (ETFs) to suit your goals, attitude to risk and how long you want to invest for. You can change the investments in your ISA whenever you like – to something more adventurous or lower risk if your needs change – they’ll still have the same tax benefits.
What are the rules of a stocks and shares ISA?
- You can hold both a stocks and shares ISA and cash ISA, but you can only pay in up to £20,000 in total across all your ISAs, including Lifetime ISAs and innovative finance ISAs.
- Any investment you make is free from UK income tax, capital gains tax and tax on dividends.
- A stocks and shares ISA can be transferred to another provider, but you must follow the correct steps, or you’ll lose the tax benefits.
- With our stocks and shares ISA, you can withdraw money without penalties.
- You can’t invest in some things – like residential property, art, or antiques.
Please note that tax rules depend on individual circumstances and are subject to change.
What are the risks of a stocks and shares ISA?
Investing in stocks and shares involves a level of risk, and the value of investments can rise or fall depending on market conditions. This means that the value of your stocks and shares ISA could go down as well as up, and you may not get back the amount you invested.
Stocks and shares ISAs may offer potentially better returns over years, but they are riskier than a cash ISA. If you need your money quickly, you may not be able to sell your investments at a profit when you need to.
You’ll also need to be comfortable managing your own investments and making your own investment decisions. If you’re not sure whether that’s right for you, you can chat to a financial adviser.
How do you open a stocks and shares ISA?
Start by researching different stocks and shares ISA providers to find one that suits your investment goals, risk level, and budget. You can compare different providers online and can typically apply online, over the phone or by post. We offer a Stocks and Shares ISA with a range of investment options. These include investment funds, UK stocks and shares and exchange-traded investments.
To start investing, you may need a form of ID like a passport and your National Insurance number. You’ll also need your bank details – to fund your account by transferring in money, either in a lump sum, or by regular contributions.
What does a stocks and shares ISA cost?
The cost of a stocks and shares ISA will be different depending on the provider and the investments held within the ISA. Most providers charge a platform fee for managing your investments – normally a percentage of the value of your portfolio or a flat fee. If you invest in funds, you’ll also be charged an ongoing charge figure (OCF), which includes the fund management fee and other expenses. If you buy and sell stocks or shares, you may also be charged a trading fee by your ISA provider. There may be other charges you’ll need to be aware of – read more about our charges.