What is a stocks and shares ISA?

It is a stocks and shares investment that is made tax efficient by using your ISA allowance.

Who can open one?

You have to be at least 18 years old and a UK resident with a national insurance number to apply for a stocks and shares ISA.

How much can you invest?

Did you know?

The tax year runs from the 6th April to the 5th April the following year.

The amount you can pay in each year is limited to your ISA allowance. This is 15,240 in the 2016/17 tax year.

If you have already used any of your ISA allowance in a cash ISA or innovative finance ISA this tax year, you will need to deduct the amount from your overall ISA allowance to find out how much you can invest in a stocks and shares ISA.

For example: if you pay 5,000 into a cash ISA, this leaves you with 10,240 that can either be invested in a stocks and shares ISA or cash ISA until the end of the tax year.

Do you pay tax on stocks and shares ISAs?

You will not pay any tax on the interest you make from a stocks and shares ISA, but if you get a dividend from your investment you will pay dividend tax.

This is why a stocks and shares ISA cannot be called completely tax free.

If you are a higher or additional rate taxpayer you will not need to pay extra dividend tax when you invest in a stocks and shares ISAs.

Where can you invest your ISA?

You can use your ISA wrapper across a range of investments by speaking to a financial advisor or using a funds supermarket.

Some of the investments you can use your ISA wrapper with include:

What is a funds supermarket?

It is an online platform that lets you manage all of your investments. You can buy shares, funds or bonds and use your ISA wrapper.

You can invest in a stocks and shares ISA through an investment platform. This lets you check how your investment is doing and also add and withdraw your money.

How do you set up a stocks and shares ISA?

You can either choose to invest in a stocks and shares ISA:

  • Yourself: ISA wrap an investment you want through an investment platform, without the need for advice.

  • Through an advisor: you will be given advice on the right investments for your ISA wrapper and the option to regularly review your investments with a professional.

What are the charges?

This depends on which type of investment you want to ISA wrap, but the common fees and charges include:

  • Platform charge: this can be a flat fee or a percentage of the value of your fund (for example, from no charge up to 4% or a flat fee of 100)

  • Annual management charge: this is a percentage of your overall fund which is deducted every year (for example, from no charge up to 4.61%)

  • Transaction charge: a flat fee for every time you buy or sell a fund (for example, 5 each time)

  • Transfer out fee: a percentage or a flat fee per fund. The more funds you have to transfer out, the higher the cost will be (for example, from no charge up to 3% or 100 per fund).

Can you transfer your ISA?

Yes, but not all providers will let you move your ISA to them. The process of moving your ISA from one provider to another is called an ISA transfer, and the new provider will do all the work to transfer your ISA across to them.

You can transfer your stocks and shares ISA to a cash ISA, and vice versa if you wish.

If transferring it to a new stocks and shares ISA you need to watch out for exit fees. These can vary significantly but can cost around 25 per holding.

It costs you less to transfer your stocks and shares ISA into a cash ISA, with exit fees usually a one off amount such as 25.

Make sure you get advice from an independent financial advisor if you are not sure what to do.

Should you invest in a stocks and shares ISA?

If you do not want to put your money at risk, a stocks and shares ISA is not a suitable way for you to invest.

A stocks and shares ISA could give you a much higher return compared to a cash ISA but you could lose some or all your money if:

  1. 1.

    The value of your investment falls

  2. 2.

    Your return is less than the amount you pay in fees and charges

If you are not sure if you should invest in a stocks and shares ISA, a cash ISA or a combination of the two, then read our guide which could help you choose.

Alternatively, you could speak to an independent financial advisor to discuss if stocks and shares ISAs are a good match for you.