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Stocks and shares ISAs

The total amount you can save into Individual Savings Accounts (ISAs) in the current tax year is $20,000. This is known as the ISA allowance. ISAs are sometimes referred to as tax ‘wrappers’, because the money you hold in them is sheltered from both Income Tax and Capital Gains Tax. This article looks at how one type of ISA – a Stocks and shares ISA - works and what you need to know.

When might a stocks and shares ISA be for you?

If you don’t understand a financial product, get independent financial advice from a regulated financial adviser before you buy. Financial advisers are regulated by the Financial Conduct Authority.

A stocks and shares ISA could be for you if:

  • checkyou are happy to put your money into investments funds for long term savings with tax free growth
  • checkyou aren’t looking for immediate access to your money and are prepared to keep your money invested for a number of years, you haven’t used up your total ISA allowance for the current tax year.
  • checkyou’re comfortable with the fact that the value of your investments can go both up and down and that you might get back less than you invested.

What investments are held in stocks and shares ISAs?

A stocks and shares ISA is effectively a ’tax wrapper’ that can be put around a wide range of different investment products. Any investment growth or interest earned within a Stocks and shares ISA is tax-free.

Lots of different types of investment can be held in an ISA, including:

  • checkunit trusts
  • checkinvestment trusts
  • checkexchange-traded funds
  • checkindividual stocks and shares
  • checkcorporate and government bonds
  • checkOEICs (Open Ended Investment Companies).

You’ll often find that stocks and shares ISAs are sold and marketed as products in their own right.

How stocks and shares ISAs work

You can pay a total of $20,000 a year into an ISA in the 2023-24 tax year.

  • checkYou can divide your ISA allowance across the four different types of ISAs: cash, stocks and shares, innovative finance or lifetime. Although the maximum you can put into a lifetime ISA is $4,000 each tax year.
  • checkYou can’t put money into the same type of ISA in the same tax year, for example, two stocks and shares ISAs – you’d need to wait until the next tax year to put money into the second stocks and shares ISA.
  • checkYour annual ISA allowance expires at the end of the tax year (5 April) and any unused allowance will be lost. It can’t be rolled over to the following year.
  • checkYou can make a lump sum investment and/or regular or ad hoc contributions throughout the tax year.
  • checkAny increase in value of the investments in your stocks and shares ISA is free of Capital Gains Tax.
  • checkMost income from your stocks and shares ISA is tax-free.
  • checkYou can only pay into one stocks and shares ISA in each tax year, but you can open a new ISA with a different provider each year if you want to. You don’t have to use the same provider for your cash ISA if you have one.
  • checkIt’s worth shopping around to make sure you find an ISA that suits you. Compare any charges for the ISA wrapper and the range of investments you can put inside.

ISA rules on deceased spouse ISA transfers

ISA rules introduced in April 2015 mean that if your husband, wife or civil partner dies you can inherit their ISA. You will receive an additional ISA allowance equal to the value of the deceased’s ISA savings at the time of death.

Transferring ISAs

  • checkIf you wish to switch your current or previous year’s ISA to a different provider’s ISA while simultaneously keeping future tax benefits intact, you have to arrange for a transfer rather than selling and reinvesting. If you do simply close one ISA and open another rather than transferring between the two, you lose the tax advantages.
  • checkAll ISA providers have to allow transfers out, but they don’t have to allow transfers in.
  • checkYou can transfer money from a cash ISA to a stocks and shares ISA,and vice versa (money in a stocks and shares ISA can be transferred into cash).
  • checkIf you transfer an ISA that you have paid into during the current tax year to a new provider, you must transfer the whole balance. For ISAs from previous years, you can choose how much to transfer.

Access to your money

  • checkYou can sell the assets held in your ISA at any time and there’s no minimum length of time you need to hold it.
  • checkIf you do cash in some or all of your ISA, you can only reinvest this money into another ISA to the extent that you have unused available ISA allowances.

Charges on stocks and shares ISAs

  • checkIt’s important to check the charges on the underlying investment as these can vary a lot and can impact the amount of money you get back.
  • checkBy making sure of the details you can also avoid being overcharged.

How safe are your savings?

If a fund manager goes bust and owes you money – and the manager is covered by the Financial Services Compensation Scheme - you can claim compensation of up to $85,000 per person, per institution.

How to buy a stocks and shares ISA

You can buy an ISA:

  • checkdirectly from an ISA provider
  • checkdirectly through a fund manager
  • checkdirectly from discount brokers, fund supermarkets or a bank
  • checkfrom a regulated financial adviser or financial planner
  • checkthrough an online share account or stockbroker.

Charges might vary for the same product depending on where you buy it, so check and see where it’s cheapest.

If you’re not sure what kind of investments would suit your personal goals and needs, talk to a regulated financial adviser.

Tax and stocks and shares ISAs

Investments that pay interest (ie government and corporate bonds), or rental income (such as some property funds) provide 100% tax-free income if held within an ISA and therefore offer tax benefits for everyone.

All individuals are eligible for a $1,000 tax-free Dividend Allowance. The dividend allowance is in addition to your personal allowance, which is the amount you can earn each tax year before you have to start paying tax. From 6 April 6 2024, it is being halved again, going down to $500.

Dividends received by pension funds or received on shares within an ISA are tax free and won’t impact your dividend allowance.

Also, any profit you make when selling investments in your stocks and shares ISA is free of Capital Gains Tax.

Any losses made on your investments in your stocks and shares ISAs can’t be used to offset capital gains on your other investments.