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Stocks and Shares ISAs – what you need to know

ISAs allow you to save and invest free from UK income and capital gains tax. We look at the features and benefits of a Stocks and Shares ISA.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The end of the tax year (5 April) is around the corner. As it gets closer lots of investors will start making contributions to Individual Savings Accounts (ISAs) to shelter as much as they can from UK income and capital gains tax.

One of the reasons why ISAs are popular is because they’re simple. But 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 lets you hold investments. It isn’t an investment in its own right. The account acts as a tax wrapper, sheltering you from UK income and capital gains tax on the investments you hold in it.

Remember, tax rules can change, and the benefits will depend on your individual circumstances. This article isn’t advice. If you aren’t sure if an investment or course of action is right for you, please speak to a financial adviser.

Here are some of the features and benefits of a Stocks and Shares ISA you should be aware of:

No UK income tax or capital gains tax

You don’t have to pay UK income tax or capital gains tax on investments held in a Stocks and Shares ISA. So you can 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 change or increase. But if you hold investments in an ISA, you won’t need to worry about tax on these investments.

They don’t need to be declared on a tax return

Anything held in a Stocks and Shares ISA doesn’t need to be declared on a 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.

There’s a £20,000 allowance

There’s a limited amount you can put into ISAs each year which is called the ISA allowance.

In the 2020/21 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. But only if all your contributions fall within the overall limit.

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 if you wanted to though.

One Stocks and Shares ISA per tax year

You can only pay into one Stocks and Shares ISA in each tax year.

This means that if you pay into a Stocks and Shares ISA with one provider in one tax year, you can’t pay into another with another provider in the same year.

You can hold multiple Stocks and Shares ISAs with different providers if the money was added in previous tax years.

You can invest

As it’s called a Stocks and Shares ISA, you’d expect to be allowed to invest in it. You can invest in funds, which are one of the most popular ISA investments.

Funds hold a collection of investments, chosen and run by a fund manager. Each fund will have different objectives, invest in different places and have different levels of risk – 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 also invest in UK and international shares, investment trusts, bonds and some ETFs.

You can mix and match investments within the account and aren’t restricted on the number of investments you can hold. This allows you to smartly spread your investments and diversify your portfolio.

Diversification – the investor’s tool we all need to talk about

Some investments, such as funds, will have their own charges, so its important to do your research and make sure that investment is right for you and your circumstances.

Stocks and Shares ISA providers will have charges for holding investments. There could be dealing charges too. Both will 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’ll need to check these charges against a normal investment account to see if you’re paying any extra in charges to cover the tax benefits of an ISA.

View HL Stocks and Shares ISA charges

If you’re looking for inspiration on where to invest a Stocks and Shares ISA, here are some ideas to get you started.

View our ISA investment ideas

If you want to make the most of your ISA allowance this tax year, but you’re not sure where to invest it straight away, you can hold cash in a Stocks and Shares ISA while you decide where to invest. You might not receive any interest on it though, and over time inflation would erode the future spending power of your cash.

You can access the money if you really need to

There isn’t a fixed time limit for how long you need to hold a Stocks and Shares ISA.

If you need to access the money at any time, it’s not locked away and can be accessed if you need it.

That said, investing should be for the long term – by long term we mean 5 years or more, not days, weeks or months.

You shouldn’t invest money that you might need in the next five years.

Should I save or invest?

You can transfer in from other providers

You can transfer Cash ISAs or Stocks and Shares ISAs to another ISA.

You won’t lose the ISA wrapper if you transfer and it won’t count towards your ISA allowance for that tax year.

If you have a Cash ISA with a fixed rate, remember to check your terms so that you don’t have to pay a penalty if you decide to transfer before the fixed rate ends.

Don’t forget unlike cash, investments can fall as well as rise in value and you may not get back what you invest.

If you’re transferring an ISA you’ve already paid into this tax year, you’ll need to transfer the amount paid in this year in full.

Amounts paid in using previous years’ ISA allowances can be transferred in full or partially.

More about transferring

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

Discover more


What did you think of this article?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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