Individual Savings Accounts or ISAs are accounts that let you shelter your savings and investments from tax. You have probably heard of Cash ISAs, but maybe you haven’t invested in a Stocks and Shares ISA.
What is a Stocks and Shares ISA?
ISAs are savings and investments accounts that offer tax incentives. While a Cash ISA lets you save tax-free, a Stocks and Shares ISA is a tax-efficient investment account that lets you put money into a range of different investments.
When you invest in a Stocks and Shares ISA, there’s no income tax to pay on any dividends or interest generated, and no capital gains tax if you make a gain when you sell your investments.Keep in mind that a Stocks and Shares ISA is designed for investments, so you won’t get interest if you hold any cash in this type of ISA. The value of investments go up and down over time, so you could get back less than you put in.
If you’re not sure whether investing is right for you, read our ‘is investing right for me?’ article. Remember investments can be volatile in the short term, which is why you should only invest if you are happy to put away your money for at least five years. If you have a shorter time horizon you might want to consider a Triodos Cash ISA as another way to make an impact with your money while sheltering it from tax.
You can save or invest up to £20,000 into ISAs each tax year
Most UK adults can pay up to £20,000 into ISAs each tax year, but this allowance can be split between different types of ISAs. For example, you could put £10,000 into a cash ISA, and the remaining £10,000 into a Stocks and Shares ISA.
By using your ISA allowance every year you can build up a significant portfolio of tax-efficient savings and investments. You don’t need to use the full allowance, but by saving little and often you can build up a useful nest egg which is sheltered from tax.
You can mix and match how much you want to pay into each type of ISA each tax year. This can be useful for financial planning as you can decide how much you want to put into cash and investments depending on your situation and goals.
Thanks to new rules which came in on 6 April 2024, you can now pay into several ISAs of the same type in the same tax year. For example, you could pay some of your ISA allowance into a cash ISA with one bank, and the rest into a cash ISA with a completely different bank. Just so long as you don’t go over your £20,000 allowance.
Can I take money out of a Stocks and Shares ISA?
Yes, you can take money out at any time. But there are two important things to be aware of:
- You may need to sell your investments. It usually takes three working days for the trade to settle and the proceeds to be available. Depending on the price when you sell compared to the price you bought the units for, you may get back more or less than you put in.
- When you take money out of an ISA, you usually lose the ISA status. This means you can’t put that amount back into the ISA without it counting as a new ISA subscription. For example, if you put £20,000 into an ISA and then took £10,000 out in the same tax year, you wouldn’t be able to put it back in until the next tax year when you get your next allowance. Some Flexible ISAs, such as the Triodos Cash ISA allow you to put cash back in within the same tax year, but the Triodos Stocks and Shares ISAdoesn’t.
The main lessons here are that Stocks and Shares ISAs are designed for the long term and aren’t ideal if you think you’ll need to dip into it in the short term. If you want to make your money work harder, but need ready access to it, you might want to consider a Triodos Savings Account or Triodos Cash ISA.
FAQs
A Stocks & Shares ISA is an investment account that allows you to shelter money from tax (up to £20,000 per year) and invest in shares, funds, investment trusts and more. Vitally, any returns you make on your investments will be completely tax-free.
How do you make money with a stocks and shares ISA? ›
Investment Isas, where you invest your savings in the stock market, could offer you the chance to make higher returns. However, returns are not guaranteed and you could make a loss if you withdraw your money at a time when markets are down.
ISA stocks and shares ISA a good idea? ›
If you have a long-term savings goal in mind, then a stocks and shares Isa can be greatly beneficial, according to Khalaf. “It can be used for a variety of longer-term investment goals, such as saving for school or university fees, to pay off a mortgage, or to boost your retirement fund,” he explained.
How does a stocks and shares ISA account work? ›
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: unit trusts.
Do you pay tax when you take money out of a stocks and shares ISA? ›
Taking money out of ISAs, including stocks and shares ISAs, is, in most cases, both flexible and tax-free. Any amount withdrawn from a cash ISA, a stocks and shares ISA, or a lifetime ISA is not taxable, and as such, neither an ISA withdrawal nor an ISA account needs to be reported on income tax returns.
Why are my stocks and shares ISA losing money? ›
A fund might be a dud, a fund manager might leave, or you might not be willing to take as many risks as you once did. If you don't review your portfolio regularly, you could end up with a stocks & shares ISA losing money. Don't panic. Investments can go down as well as up.
Can I put $20,000 in an ISA every year? ›
Putting money into an ISA
Every tax year you can save up to £20,000 in one account or split the allowance across multiple accounts.
What are the disadvantages of a ISA? ›
Stocks and shares ISAs carry a higher risk as well as a higher potential for rewards, depending on where the money is invested. It's important to work with an independent financial advisor if you're investing in a stocks and shares ISA because there may be a possibility of capital loss.
What happens if I pay into two stocks and shares in ISAs? ›
You can pay into two ISAs in the same tax year provided they are different types of ISA. It would be fine to pay into both a cash ISA and a Stocks & Shares ISA in one tax year as long as you're below the £20,000 limit. You would not be able to pay into two different ISAs of the same type.
What is the average return on a stocks and shares ISA? ›
You can vary how much risk you take, depending on what you invest in, and this can also have an impact on your returns. The average rate of return for a Stocks and shares ISA over the past decade is 9.6%, according to Moneyfacts, whereas the average rate of return for a Cash ISA is 1.2%.
If you're a married couple, you can put up to £40,000 in ISAs between you. Tax-free. Be aware. You can choose how much or little of this £20,000 allowance you want to invest each year but do bear in mind, you can't 'carry it over' to the next year.
Can you get a monthly income from a stocks and shares ISA? ›
An income ISA is a way of using your ISA allowance that aims to provide you with a regular tax-efficient income payment on your investment or savings. Income may be paid on a quarterly, semi-annual or annual basis, so you can choose an option to suit your savings goals.
Which bank has the best stocks and shares in ISA? ›
Our top five ready-made stocks and shares Isas
- Wealthify. Best for a unique offer. ...
- Halifax. Best for simplified investing. ...
- InvestEngine. Best for: ETF investing. ...
- Plum. Best for an award winning app. ...
- AJ Bell Dodl. Best for cheap fees. ...
- AJ Bell Stocks and Shares Isa. ...
- Interactive Investor. ...
- Fidelity Personal Investing.
Best-performing stocks and shares ISAs
| Fund | % total return over 25 years | £1,000 investment |
|---|
| IFSL Marlborough Special Situations A Accumulation | 2,521 | £26,208.57 |
| abrdn SICAV I - Indian Equity A Acc USD | 2,393 | £24,927.55 |
| HSBC GIF Indian Equity AD | 2,320 | £24,199.33 |
| SKAGEN Global A NOK | 1,894 | £19,940.44 |
1 more rowAug 22, 2024
When you take money out of an ISA, you stop earning tax-free interest on the withdrawn amount. Every tax year, you have an annual ISA allowance, which is currently £20,000.
Are stocks and shares (ISAs) subject to inheritance tax? ›
ISAs lose their tax-efficient status on death. This means the beneficiary will not benefit from tax-free income and growth and might have to declare them in their tax return. In addition, ISAs can form part of your estate. If your estate is liable for inheritance tax, your ISA will be caught too.
Is it easy to make money on stocks and shares? ›
Can You Make a Lot of Money in Stocks? Yes, if your goals are realistic. Although you hear of making a killing with a stock that doubles, triples, or quadruples in price, such occurrences are rare, and/or usually reserved for day traders or institutional investors who take a company public.
How do you maximize stocks and shares in ISA? ›
Maximise your contributions
So the more you can invest, the greater your money can grow. Contributing a small regular sum and choosing the right investments can soon grow your pot. But making sure you use your full ISA allowance per year is the only way to maximise your ISA's true potential.
