A stocks and shares ISA, also known sometimes as an investment ISA, is a tax-efficient investment account available in the UK. This ‘tax wrapper’ effectively means any investment growth or interest earned within a stocks and shares ISA is tax-free.
How do Stocks and Shares ISAs work?
Here's a breakdown of everything you need to know and how Stocks and Shares ISAs work:
You can pay a total of £20,000 into an ISA every tax year (your ISA allowance).
You can divide your yearly 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.
You can’t put money into the same type of ISA in the same tax year, for example, you can't invest into two different Stocks and Shares ISAs – you’d need to wait until the next tax year to put money into the second Stocks and Shares ISA.
Your annual ISA allowance expires at the end of the tax year (5th April) and any unused allowance will be lost. It can’t be rolled over to the following year.
You can make a lump sum investment and/or regular contributions throughout the tax year.
Any increase in value of the investments in your Stocks and Shares ISA is free of Capital Gains Tax.
Most income from your Stocks and Shares ISA is also tax-free.
It’s worth shopping around to make sure you find an ISA that suits you. You can choose different providers for different ISA types, and you can move your ISA to another provider.
What does tax efficiency mean?
No tax on your return on investment, such as if the value of the shares you hold increases.
No further tax to pay on any dividends or interest received. Subject to a dividend allowance.
No Capital Gains Tax (CGT), which may be relevant if you have used up your annual CGT allowance.
Can I easily access my money?
You can sell the holdings of your stocks and shares ISA at any time. There’s no minimum length of time you need to hold it and usually no penalty for doing so. If you do cash in part of or all ISA, you can only reinvest this money into another ISA to the amount that you have left over in your ISA allowances.
This information is based on current HMRC tax rules, so it may change and will be personal to your circumstances. Be sure to check GOV.UK for the latest information before making any decisions.