A stocks and shares ISA, sometimes called an investment ISA, protects your portfolio from tax. Here’s what you need to know about these tax-efficient accounts and how to compare options.
An individual savings account (ISA) is a unique type of tax-efficient account that we’re lucky to have here in the UK. A stocks and shares ISA is a version of this account that allows you to invest whilst protecting your ISA portfolio from tax.
It may not sound super exciting on the surface, but the stocks and shares ISA is like a secret weapon for UK investors. It’s now easier and cheaper than ever to find and use an investment ISA, and you’ll be amazed at how it can help you build wealth much faster.
What is a stocks and shares ISA?
It’s a type of account that shields investments from UK taxes. Sometimes, people get confused and think that a stocks and shares ISA is a type of investment, but it’s not. It’s a type of investment account in which you hold investments.
Any investments or money held within a stocks and shares ISA won’t be subject to any additional tax in the UK, so these accounts can grow free from the burden and hassle of tax. It’s similar in structure to a cash ISA, except for the fact that it’s designed to hold investments rather than cash.
How does a stocks and shares ISA work?
The account itself, on the surface, works exactly the same way as any other investment account. So, after you open a stocks and shares ISA and start using it, you won’t notice any difference on your end because all the magic happens behind the scenes.
Each year, you’ll have an annual ISA allowance that can be used with one type of ISA or split across several. In the 2024/2025 tax year, you have a £20,000 ISA allowance. You can use part or all of this for your stocks and shares ISA. So, you’re able to put up to a total of £20,000 in your stocks and shares ISA this year.
The 2 main ways you make money from investments are:
Appreciation. This is when you buy an investment and then sell it for a high price at a later date. The difference between what you paid for it and what you sold it for is known as a “capital gain”, which basically just means your profit.
Income. Fixed income investments like bonds will pay you money at specified times. Also, some investments pay shareholders dividends as a reward for holding the investment.
Normally, you’d get taxed on money you make from your investments (after you breach your tax-free allowances, which we cover later). But the ISA wrapper means you don’t have to pay the UK tax you normally would. And, when you withdraw money from your stocks and shares ISA, it doesn’t count towards your income tax from that year.
Types of stocks & shares ISA platforms
Other than flexible and non-flexible ISAs, the stocks and shares ISA wrappers are all structured in the same way. However, each investing platform will differ in what you can hold within your ISA wrapper.
The 2 main types of stocks and shares ISA platforms are:
DIY platforms. With these platforms, you can pick your own investments.
Robo-advisor platforms. For this type of platform, you’ll be assigned a ready-made investment portfolio.
Compare DIY platforms
Here are some DIY investment platforms that offer stocks and shares ISAs. These accounts let you buy individual investments to craft your own perfect portfolio.
Robo-advisors are platforms that will invest on your behalf. You can choose between portfolios made by professionals or get matched with one based on your goals and risk appetite.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Why use a stocks and shares ISA?
Any profit you make on any investments (through capital gains or income) will be shielded from tax. And, unlike a pension, you don’t pay income tax on any withdrawals from your stocks and shares ISA. Paying less tax means keeping more of your money, leaving you wealthier.
It’s like having a secret (but legal) account completely outside the UK tax system. When it comes to UK tax, the stocks and shares ISA wrapper is like an invisible cloak that you can throw over your portfolio. Not only does it reduce your tax responsibilities, but it’s also less hassle for you because there’s no boring paperwork to file each year, either.
Tax-free allowances in the UK
It’s worth having a grasp of tax-free allowances because this will help highlight the importance of using a stocks and shares ISA. Previously, you had much higher tax-free allowances, which made the ISA wrapper more useful for those with larger portfolios.
Today, the ISA is more important than ever because of the drastic lowering of the tax-free thresholds. In the 2024/2025 tax year, the tax-free allowances are set at:
Capital gains tax (CGT). The yearly tax-free allowance for CGT is £3,000.
Dividend tax. The yearly tax-free allowance is £500.
If you make a capital gain of more than £3,000 or earn more than £500 in dividends, you’ll have to pay a certain level of tax. Using a stocks and shares ISA means you get to swerve this entirely.
How much can you invest with a stocks and shares ISA?
You can put in up to £20,000 each UK tax year into a stocks and shares ISA. At the moment, there’s no total upper limit. So, you can invest as much as you want over the years (as long as you’re only putting in £20,000 maximum each year).
However, the yearly allowance isn’t guaranteed going forward, and it can change. In the past, it has increased and has now remained at the current level for a number of years.
But the UK government could change this policy and remove or reduce the ISA allowance in the future, and unused allowance each year doesn’t roll over, which is why people like to say “use it or lose it”.
What is a flexible stocks and shares ISA?
One difference that can set stocks and shares ISAs apart is whether the ISA is flexible. Here’s what each option means:
Flexible ISA. This allows you to withdraw money from your ISA and pay it back within the same year without it affecting your yearly allowance.
Non-flexible ISA. If you take money out of this ISA, replacing it will eat into your allowance for the year.
ISA investment options
The sky’s the limit when it comes to investment options for a stocks and shares ISA. Your only limitations revolve around what your platform will let you invest in.
Here are examples of the types of investments you could hold in a stocks and shares ISA:
As mentioned, not every platform will offer you all types of investments. So, understanding how you want to invest with your stocks and shares ISA will help you pick the right platform.
Expert analysis: Shakeup of ISA rules and changes in 2024
ISAs keep going from strength to strength. Last year, we saw stocks and shares ISAs become more important than ever due to a drastic lowering in the tax-free allowances for both dividends and capital gains. And your dividend allowance is dropping further, from £1,000 to £500 in 2024.
This year, changes to ISAs in April 2024 mean you have more flexibility and options than ever before. The rules are being eased so you can open and pay into more than one stocks and shares ISA each year. Loosening up the restrictions lets you hold multiple investment ISAs, meaning you can benefit from each platform’s strengths. You'll also still have a £20,000 yearly allowance to spread around a selection of ISAs as you see fit.
Flat monthly fee 40,000+ investments Ready-made ISA portfolios
To choose the best investment ISA for each category, we evaluated all the share dealing platforms we’ve reviewed on our site (that offer ISAs) against a range of metrics, and then selected platforms offering stand-out features for specific investing aspects. Keep in mind that our best picks may not always be right for you – it’s important to compare for yourself. Read our full methodology here to find out more.
The risks of stocks and shares ISAs
It’s not always plain sailing with stocks and shares or any type of investment.
The investment risk of a stocks and shares ISA isn’t the account itself, but the underlying investments you hold within the wrapper.
All stocks and shares ISAs are fairly similar in structure (flexible ISAs being the only key differentiator). However, the risks lie the investments you choose (by yourself or with a robo-advisor).
It’s important to use your stocks and shares ISA to hold investments that fall within your personal attitude towards risk. When investing, there are options that can be more, or less, risky. So, it’s worth understanding this first before you invest. You should be prepared to hold investments in your ISA for at least 5 years.
Stocks and shares ISA average return
Finder research shows how average returns for people has fluctuated over time:
Here’s how you can open a stocks and shares ISA and start investing in a few simple steps:
Decide how you want to invest. Think about whether you want to pick your own investments or use a robo-advisor to select a portfolio for you.
Choose a platform. Select a platform for your stocks and shares ISA. Remember, you can now open multiple ISAs and pay into them in the same year.
Open your account. After deciding on a platform, you’ll need basic personal details, including your national insurance (NI) number to open an account and set up the ISA.
Deposit funds and invest. With your stocks and shares ISA ready to go, the final step is to deposit funds into your account and start investing.
Transferring a stocks and shares ISA
You can usually transfer stocks and shares ISAs to another provider if you want to. All providers must allow outbound ISA transfers, but they don’t have to allow incoming transfers, so always check.
Many providers have ISA switching services that handle it all for you. It’s not a good idea to just withdraw everything and invest it with the new provider, as you’ll lose some of the protection you’ve built up and your allowance for the current year will be affected.
Can I invest ethically in a stocks and shares ISA?
You can! There are a few different ways you can invest ethically:
Ethical companies. The first way is to find ethical firms and buy shares in them. You can search for individual companies here at Finder to see their ESG scores.
Ethical funds. The second way is to find ethical funds and invest in those. Using a fund screener on your chosen provider website, you can search keywords like “ethical”, “ESG”, “sustainable” and “impact” to find some.
Ready-made portfolios. The third way is to choose a robo-advisor and invest in an ethical ready-made portfolio. Lots of providers have ethical options to choose from.
Pros and cons of stocks and shares ISAs
Pros
Invest up to £20,000 each tax year
Pay no UK capital gains or dividend tax
Pay no income tax when you withdraw
You can now open multiple ISAs
No paperwork or hassle
Cons
Yearly allowance can change
Some providers charge extra fees to hold an ISA
Your investment choice can be limited by platforms
Investments could rise or fall
Bottom line
A stocks and shares ISA is a type of investment account that protects your portfolio from UK taxes. Many share dealing platforms offer ISAs, but some charge an added fee to hold one.
It’s well worth making the most of your ISA allowance each year if you plan on investing because you can stop chunks of your profit from being taken away by the government. Over time, as your wealth builds, this will become even more important and valuable – especially as tax-free allowances have reduced over recent years.
Frequently asked questions
Yes, you can. You can do this at any time, but individual platforms will have different rules around how much notice they need and whether withdrawing will cost you anything. Whether your ISA is flexible might also impact your decision.
Yes. The rules for stocks and shares ISAs are the same as those for any ISA. You can now open and pay into more than one stocks and shares ISA each year if you want.
In the 2024/2025 tax year, the allowance amount is £20,000.
They can. If the shares or investments you’ve bought pay dividends, then you’ll get them. You won’t pay tax on this income.
No. Your investment can go up as well as down, so the performance depends on the investments you hold.
Yes, you can split your yearly ISA allowance in a way that suits you. The total limit is £20,000 over all ISA types.
Yes, you can save up to a maximum of £20,000 every single year.
Most people don’t have to report the income and capital gains from their ISAs on their tax return. Remember, though, that the tax rules for ISAs can change. However, the government will announce these changes before they take effect.
For the most part, stocks and shares ISA providers are protected by the Financial Services Compensation Scheme (FSCS). This means that if the company were to go bust, you’d be covered by up to £85,000 of your investments. However, always double-check with your platform.
They can be if you choose Shariah-compliant investments. One example is the HSBC Islamic Global Equity Index Fund, which is available with plenty of providers, including Hargreaves Lansdown and Moneybox.
It is possible to transfer stocks and shares ISAs to another provider if you want to. Many providers have switching services that handle it all for you. It’s not a good idea to just withdraw everything and invest it with the new provider as this may impact your allowance for the year.
Your ISA can be inherited by your spouse or civil partner on your death. They’ll get an additional ISA allowance of the value of your ISA through an “additional permitted subscription”.
The stocks and shares ISA limit is £20,000 for the 2024/2025 tax year.
Anyone over the age of 18 who is a UK tax resident can open a stocks and shares ISA.
It is possible to withdraw money from your stocks and shares ISA whenever you want. And, money withdrawn doesn’t count towards your income tax for the year, so it can be a really useful supplement.
You can. These are called Junior ISAs (JISAs). You can invest up to £9,000 in each tax year in a JISA. The money is locked away until the child turns 18.
You could get a lifetime ISA (LISA). This lets you invest up to £4,000 per tax year for your first home or for retirement. The government contributes £1,000 for every £4,000 invested.
You could also consider a personal pension. There are tax benefits to these too, but your money is locked away until you turn 55 (rising to 57 in 2028).
The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek independent financial advice.
ESG: Is the investing landscape changing for good?
Finder published a paper in April 2021 on the trends and challenges in environmental, social and corporate governance (ESG) investing, as well as the factors that will help to shape the future of retail investing in the UK. Our paper includes original research, contributions and predictions from experts, including Julia Dreblow, founding director of SRI Services and the Fund EcoMarket tool, Clare Reilly of PensionBee, Josh Gregory, founder of Sugi, and Plum's Thanos Bismpigiannis.
George is a deputy editor at Finder. He has previously written for The Motley Fool UK, Nasdaq, Freetrade, Investing in the Web, MoneyMagpie, Online Mortgage Advisor, Wealth, and Compare Forex Brokers. He's focused on making personal finance and investing engaging for everyone. To do this he draws from previous work and his Level 4 Diploma for Financial Advisers (DipFA), sharing what he’s learnt. When he’s not geeking out about money, you’ll find him playing sports and staying active. See full bio
George's expertise
George has written 151 Finder guides across topics including:
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