What is a stocks and shares ISA?

What is a stocks and shares ISA?

A stocks and shares ISA is a tax-friendly wrapper that lets you use your annual ISA allowance (£20,000 for 2024/25 tax year) to buy shares, fund units or other types of investment.

While a cash ISA earns you interest on your savings, a stocks and shares ISA aims to generate greater returns through dividends and capital appreciation (the value of your investment going up). As per ISA rules, any potential gains you make from your investment are protected from UK tax.

If you'd like to see what your investment could be worth, try our investment calculator. It shows you what your potential returns could look like, whether you're investing a single lump sum or you want to build your pot month by month.

Bear in mind, the value of investments can go down as well as up. You could get back less than what you put in.

The tax benefits of an investment ISA

Like all types of ISA, a stocks and shares ISA brings significant tax advantages – particularly for higher-rate tax payers.

That's because there's no tax to pay on any growth or income you earn through a stocks and shares ISA, and no capital gains tax on your returns either.

Outside of an ISA wrapper, dividends of more than £500 would be taxed at 33.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers. So it's potentially a big saving if you have a lot of money invested.

Is a stocks and shares ISA right for you?

A stocks and shares ISA might be suitable for you if you are...

• Happy to take a risk in search of greater rewards

An investment ISA can help grow your pot faster than cash savings, but does expose you to the risks of the stock market.

• Willing to invest for a minimum of five years

Most stocks and shares ISAs aim to deliver growth over the medium to long-term, so it’s best for money you don’t need to access in the short-term.

Alternatively, you can read our guide on ISAs as a way to start investing to see whether a stocks and shares ISA might be right for you.

Stocks and shares ISA rules

Each tax year (6th April to the following 5th April), there's a certain amount of money you can invest in an ISA. For the tax year 2024/25, that limit is £20,000.

You can put your full allowance in a stocks and shares ISA, or split it across several different types of ISA. For instance, you could put half in a cash ISA, and half in stocks and shares.

Of course, you don't have to use your whole £20,000 allowance. Just be aware that any allowance you don't use won't roll over to the next tax year.

Different types of stocks and shares ISA

Not all stocks and shares ISAs are the same. Some will invite you to pick your own investment portfolio, while others (like Wesleyan's Stocks and Shares ISA and the Unit Trust ISA from Wesleyan Unit Trust Managers (WUTM) are invested in funds that are managed on your behalf.

That means you don't have to be an experienced investor to set up a stocks and shares ISA. The research, analysis, trading and administration is taken care of by the Fund Manager.

Whatever type of stocks and shares ISA you choose though, you'll almost always have to pay charges. There might be an initial fee to pay when you open your account, plus a management charge which is taken from the value of your investment every year or month.

Management charges can either be in percentage terms or a fixed fee, so just make sure you're clear on how the fees might impact your investment.

Who can open a stocks and shares ISA?

Any UK resident aged 18 or over can open a stocks and shares ISA. Many providers will have an upper age limit too (for the With Profits Stocks and Shares ISA, it's 74 - but there's no upper age limit on the WUTM Unit Trust ISA).

Those under 18 can have a Stocks and Shares Junior ISA - though if the child is under 16, this must be opened by a parent or guardian on their behalf.

How many stocks and shares ISAs can I have?

There’s no limit to the amount of stocks and shares ISAs you can hold. As of April 2024, you can now open and contribute to multiple ISAs with different providers in the same tax year.

This excludes Lifetime and Junior ISAs, where you can only contribute to one of each in the same tax year. Please also note you can only hold one Wesleyan With Profits ISA and one WUTM Unit Trust ISA.

Can I transfer a cash ISA to a stocks and shares ISA?

Yes, you can, and usually, you can choose whether to transfer the whole balance or just some of it. Regardless of how much you transfer, it won’t affect your allowance for the tax year if the amount you’re transferring was built up in a previous tax year.

Remember though, if you want to, you can hold both a cash ISA and a stocks and shares ISA at the same time, and contribute to both in the same tax year.

How do I withdraw money from a stocks and shares ISA?

You can take money out of an investment ISA just as you would from a cash ISA - rarely are there any penalties for withdrawal (though there may be a minimum withdrawal amount).

It's worth bearing in mind though that taking money out of your stocks and shares ISA in the short term could stunt the growth of your investment. That's why it's usually best to only invest money you won't need access to for at least five years.