What is a Stocks and Shares ISA?
ISAs allow you to save and invest free from UK income and capital gains tax. Here, we look in more detail at what a Stocks and Shares ISA is.
Last Updated: 27 March 2024
ISA stands for Individual Savings Account. One of the reasons why ISAs are popular is because they’re simple.
If you’re new to ISAs, you probably have a few questions about how they work and if they’re right for you. There are a few varieties of ISAs with different benefits for different purposes. One of these options is a Stocks and Shares ISA, which lets you hold investments.
What is a Stocks and Shares ISA?
A Stocks and Shares ISA isn’t an investment in its own right. The ISA acts as a tax wrapper – it holds your investments and shelters you from UK income and capital gains tax on any investments you hold in it.
ISA and tax rules can change, and the benefits will depend on your individual circumstances. This article isn’t personal advice. If you aren’t sure if an investment or course of action is right for you, please speak to a financial adviser.
Here we answer any questions you may have about Stocks and Shares ISAs and whether one is right for you:
Are you eligible?
You’re eligible for a Stocks and Shares ISA if you’re:
- 18 and over
- a UK resident, or a Crown Servant (for example, diplomatic or overseas civil service) or their spouse or civil partner if you do not live in the UK
Is there a limit?
Yes. There’s a limited amount you can put into ISAs each year which is called the ISA allowance.
In the 2024/25 tax year, the ISA allowance is £20,000.
You can split this allowance between a Stocks and Shares ISA, a Cash ISA, a Lifetime ISA (if opened under age 40) and an Innovative Finance ISA.
Say you wanted to divide your ISA allowance between cash and investments. You could put £5,000 in a Cash ISA and then invest the rest (£15,000) in a Stocks and Shares ISA. You do have the option to put the full £20,000 allowance in one type of ISA, with the exception of a Lifetime ISA which has an annual allowance of £4,000 (which counts towards the overall £20,000 ISA allowance).
What can you invest in?
You can invest in:
- Funds
- UK and international shares
- Investment trusts
- Bonds
- Some ETFs
Not only can you invest in a wide range of investments listed on a stock exchange, you can also invest in funds. Funds are amongst the most popular ISA investments.
Funds hold a collection of investments, chosen and run by a fund manager. They have different objectives, levels of risk and invest in different places. A fund that’s right for someone else, might not be right for you. You’ll need to make sure a fund fits with your goals and individual circumstances.
You can mix and match investments within the account. This allows you to smartly spread your investments and diversify your portfolio.
LEARN MORE ABOUT DIVERSIFICATION
If you’re looking for inspiration on where to invest a Stocks and Shares ISA, here are some ideas to get you started.
Do I pay any income or capital gains tax?
No. You don’t have to pay UK income tax or capital gains tax on investments held in a Stocks and Shares ISA. This lets you make investment decisions without worrying about how any potential gain might be treated or how the income might be taxed.
Even if you’re within the current tax allowances, you don’t know what might be coming up further down the line. Your income or tax rate could increase. But if you hold investments in an ISA, you won’t need to worry about tax on these investments.
Do I need to declare my ISA on my tax return?
Anything held in a Stocks and Shares ISA doesn’t need to be declared on a UK tax return. This includes income and gains or losses. You can save time calculating gains and working out what you owe from different income receipts or save on the expense of getting an accountant to help.
If you pay tax via PAYE, having your investments in a Stocks and Shares ISA could mean you don’t have to complete a tax return altogether. That’s only if you have no other investments or further income to declare.
How many Stocks and Shares ISAs am I allowed?
At the beginning of the 2024/25 tax year HMRC changed the ISA rules, allowing you to have multiple different ISAs of the same type each tax year. This means you can spread your £20,000 ISA limit across any combination of Stocks and Shares, Innovative Finance or Cash ISAs with different ISA providers. However you are still only able to pay into one Lifetime ISA each tax year.
Is investing in a Stocks and Shares ISA right for you?
It depends on your goals and the level of risk you are willing to take. In an ISA, your money is not locked away – you can access it if you need it. However, investing should be for the long term – by long term we mean 5 years or more. This is because the value of your investment will rise and fall, so you could get back less than you put in.
Are there any costs?
Some investments, such as funds, will have their own charges. It’s important to do your research to ensure your investments are right for you.
Stocks and Shares ISA providers will also have charges for holding investments. There could be dealing charges too. Both can vary depending on the investments you hold, and the ISA provider you choose, so it’s important to make sure they’re right for you and your circumstances.
You should check these charges against the provider’s normal investment account to see if you’re paying higher charges for their ISA.
The charge for holding funds in the HL Stocks and Shares ISA is no more than 0.45% per year.
Our charge for holding shares, bonds, ETFs and investment trusts is 0.45% capped at £45 per year.
VIEW HL STOCKS AND SHARES ISA CHARGES
Can I transfer to a Stocks and Shares ISA?
You can transfer an existing Cash ISA, Stocks and Shares ISA or Innovative Finance ISA to a Stocks and Shares ISA.
You won’t lose the ISA wrapper if you transfer, and it won’t count towards your ISA allowance for that tax year.
You can transfer part of an ISA or the whole ISA in full. Please note that ISA providers do not have to allow partial transfers of the money you’ve paid in this tax year, please check with your current provider if you’re unsure.
Before transferring, check for excessive exit fees or loss of guarantees from your current provider. Unlike cash, investments can fall as well as rise in value. You may get back less than you invest.
The HL Stocks and Shares ISA
With the HL Stocks and Shares ISA you can:
- Check it anytime online or via the HL app
- Start from £100 as a lump sum or £25 a month as a direct debit
- Access a wide range of investments
