What is a Stocks & Shares ISA?

What is a Stocks and Shares ISA?

A Stocks and Shares ISA is a tax-efficient investment account that allows you to invest your money in stocks and shares. It’s often described as a ‘tax wrapper’ because it protects your money (up to £20,000) from Income Tax and Capital Gains Tax. Stocks and Shares ISAs can be a good way to start investing if you’re a beginner, but remember that your investments can go up as well as down. This is why using Stocks and Shares ISAs as a way to invest your money for the longer term can be a good idea, as this gives your investments more time to weather any market changes.

How do Stocks and Shares ISAs work?

Stocks and Shares ISAs work in a similar way to other types of investment accounts. You can often open a Stocks and Shares ISA online, and can usually choose to make one-off or regular deposits into the account. You’ll then use the money you put into the account to buy and sell a variety of shares, bonds and funds within your chosen platform. 

Learn the difference between shares, bonds and funds in our How to start investing guide.

What makes a Stocks and Shares ISA special is that it lets you invest without paying tax on your profits — as long as you don’t exceed your annual ISA allowance, which is £20,000 in the 2024/25 tax year. You can invest your full allowance in one Stocks and Shares ISA or spread it across multiple Stocks and Shares ISAs with different providers. Alternatively, you could spread your allowance across different types of ISA, including a Cash ISA or Lifetime ISA (LISA), as long as you don’t exceed the £20,000 limit across all your accounts.

A Lifetime ISA is a special saving account that lets you save up to £4,000 each tax year for your first home or retirement. Any savings you put into a LISA will get a free 25% bonus from the government, up to £1,000. But remember that although Lifetime ISAs have a lower annual allowance of £4,000, any money you place in a LISA will make up part of your total £20,000 ISA allowance. 

There are two types of Lifetime ISA to choose from: Cash LISAs and Stocks and Shares LISAs. The right one for you will depend on your goals and how soon you’ll need the money. If you’re using a LISA to save a deposit, for example, you’ll need to consider how soon you’ll want to buy. Take a look at our Cash LISA vs Stocks and Shares LISA comparison for the pros and cons.

Do you pay fees on a Stocks and Shares ISA?

Stocks and Shares ISAs usually come with fees and charges. These might include account or platform fees, which is a charge for using that particular account or investment platform; this can be a flat fee or a percentage of any investments you hold. You might also be charged fund management fees if you invest in funds. This is the fee the fund managers charge you for looking after your investments; they are often known as ‘annual management fees’. Some ISA providers will also charge you a small fee every time you buy or sell shares on their platform, which is known as a ‘trading fee’. If you move your Stocks and Shares ISA funds to another provider, your provider might also charge you a ‘transfer out fee’.

Before opening a Stocks and Shares ISA, it’s a good idea to compare a few different providers and make a note of their individual fees. The difference between individual providers’ fees might seem small, but it can make a big difference to your progress in the long term. 

How do you make money from a Stock and Shares ISA?

You can make money from a Stocks and Shares ISA by investing regularly and leaving your money invested for a number of years. However, it’s not guaranteed that you will make a profit from your investments, as they can go up as well as down. Past performance is not a guide to future returns.

Here are our top tips:

1. Invest early and often 

The longer you keep your money invested, the more opportunities it has to compound. Compounding is a powerful investing tool where you earn returns on both your original investment and the returns you received previously. The longer your money is invested, the bigger the compounding effect - like a snowball rolling down a hill.

1. Diversify your portfolio 

As a new investor, it may be tempting to buy shares in individual companies such as Apple, Nike and Microsoft. There’s nothing inherently wrong with this, but it can be riskier than other investing strategies.  Think of it as putting all your eggs in one basket! You can diversify your portfolio and reduce the risk by investing in funds. These are a collection of investments chosen and managed by an experienced fund manager, or by a computer algorithm.

1. Automate your investments 

Work out how much you can comfortably afford to invest each month and automate your contributions. This can make it easier to build an investing habit and help you avoid making irrational investment decisions during periods of volatility.

1. Keep your cool 

Stock market fluctuations are inevitable. This is why long term investing is so powerful. If you don’t need the money for another 10 or even 20 years, your investments will have plenty of time to recover.  

How to open a Stocks and Shares ISA:

It’s easy to open a Stocks and Shares ISA. Many providers will let you open an account online or even via an app. You’ll need to be aged 18 or over and a UK resident for tax purposes. If you don’t live in the UK, you must be a Crown Servant or the spouse or civil partner of one.  

Can you have more than one Stocks and Shares ISA?

Yes, you can have more than one Stocks and Shares ISA and contribute to them all in the same tax year. Individual providers may restrict the number of Stocks and Shares ISAs you can open with them, but you could always open a second investment ISA with a different company. 

Are Stocks and Shares ISAs worth it?

Yes, Stocks and Shares ISAs can definitely be worth it. However, as with other types of investment accounts, there’s no guarantee that you’ll get back what you put in.

Here are a few questions to ask yourself before opening a Stocks and Shares ISA:

1. Have you got a financial safety net/emergency fund? It’s a good idea to have 3-6 months of living expenses in cash before investing in the stock market. 
2. What is the money for and how soon will you need it? Saving for a holiday, new car or house deposit? If you’ll need the money in less than 3-5 years, save yourself from potential heartbreak by keeping it in cash. 
3. Do you have any high-interest debts? By paying off expensive debts before you start investing, you can reduce the amount of interest you pay to your creditors and avoid panic selling your investments to cover your debt payments in future.
   

Not ready to open a Stocks and Shares ISA just yet? You might like our guides on how to save money and how to ask for a pay rise instead.

Can you transfer a Stocks and Shares ISA to a Cash ISA?

Yes, you can transfer a Stocks and Shares ISA to a Cash ISA and vice versa. All ISA providers have to allow transfers out, but they don’t have to allow transfers in. Before making a switch, check your new provider’s terms and conditions to make sure they’ll accept your transfer. It’s up to you whether you transfer all the money held in your Stocks and Shares ISA or just a portion of it. 

If you have a large amount of money in your Stocks and Shares ISA, you’ve been investing for a number of years, or you’re hoping to retire soon, it’s a good idea to speak to a financial advisor before requesting a transfer. They’ll help you make the most of your money and avoid making any moves that could leave you worse off. 

Take a look at our guide: Do I need a financial advisor? to learn more

Can you withdraw from a Stocks and Shares ISA?

Yes, you can withdraw money from a Stocks and Shares ISA. To make a withdrawal, you’ll need to sell some or all of your investments. If your investments have fallen in value, you may get back less than you put in. If your investments have risen in value, you may have made a return.

It can take a few days or even weeks for the money to land in your bank account, depending on your provider. If you need faster access to your cash, consider an easy access Cash ISA instead.