Stocks and Shares ISA

Stocks and Shares ISAs are tax-efficient investment accounts that allow you to put your money into a variety of different investments.


1. What is a Stocks and Shares ISA?

2. What investments can be held in a Stocks and Shares ISA?

3. What is the Stocks and Shares ISA allowance?

4. Can I transfer a Stocks and Shares ISA?

5. Are Stocks and Shares ISAs safe?

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What is a Stocks and Shares ISA?

Stocks and Shares ISAs are tax-efficient investment accounts that allow you to put your money into a variety of different investments including bonds, funds and shares. Stocks and Shares ISAs are not investments in its own right it is instead a type of account. These accounts are used to invest in individual companies and are usually managed by an online platform or broker.

There are a wide variety of stocks, shares and funds available with and ISA. Investors can either invest into an individual fund or choose to have their capital spread across a variety of stocks and shares funds in ready made portfolios. These ready made portfolios enable investors’ capital to be allocated across various asset classes, geographic locations and sectors to support a diverse and balanced portfolio. 

Whilst there is usually a fee associated with opening, holding, changing and withdrawing investments in a Stocks & Shares ISA you don't have to pay any capital gains tax on profits made from share price increases or tax on interest. However, if you get a dividend from your investment you will pay dividend tax. 

Although there is no minimum amount of time you must hold your Stocks and Shares ISA before selling the assets held in it, a good rule of thumb is to keep your investments in a stocks and shares ISA for at least five years. The reasoning behind this is due to the volatility of the stocks and shares market and allows for time to ride out any falls in the value of your assets.

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What investments can be held in a Stocks and Shares ISA?

Stocks and Shares ISAs allow you to invest in a range of investment products, including;

Unit trusts

A unit trust is created by a fund manager and is made up of bonds and shares in companies. The collection of bonds and shares make up a fund and this fund is then split into units.

Unit trusts are open-ended, which means that there is no limit to the number of units created. Simply put, the more people that invest into a fund, the more units are created.

Investment trusts

Unlike unit trusts, investment trusts are closed ended. This means that trusts issue a fixed number of shares when they are set up. The shares of an Investment Trust’s are traded on the stock exchange like any public company.

Individual stocks and shares

Individual stocks and shares is when an investor owns part of a company, which can be either private or public. 

Corporate and government bonds

A  bond is a fixed income instrument, representing a loan made by an investor to a borrower. Bonds can be either a government bond or corporate bond. A bond pays the investor interest at regular intervals at a target rate over the bond term.

Open Ended Investment Companies (OEICs)

OEICs are similar to unit trusts but differ in the fact that the fund is run as a company. This means investors in an OEIC are owners of the underlying assets within the fund.

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What is the Stocks and Shares ISA allowance?

The Stocks and Shares ISA allowance for the 2019/20 tax year is £20,000. You can choose to place your whole ISA allowance in a Stocks and Shares ISA, or you can split it between several different types of ISA, including a Cash ISA and an IFISA. 

You can only pay into only one stocks and shares ISA in any one tax year. 

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Can I transfer a Stocks and Shares ISA?

You can transfer a Stocks and Shares ISA from one provider to another, or to a different type of ISA, as long as the provider you’d like to transfer to accepts transfers. Your annual ISA allowance for that tax year will not be impacted if transferring from one ISA Manager to another in the same tax year.

However if you withdraw - rather than transferring - money from an ISA you will lose tax benefits on that money. When transferring to a new stocks and shares ISA there may be exit fees that apply. Exit fees vary, so it is worth taking this into account before transferring.

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Are Stocks and Shares ISAs safe?

When comparing a stocks and shares ISA against other types of ISAs in terms of their return potential, a stocks a shares ISA could give you much higher returns than that of a Cash ISA or IFISA. 

However it is important to understand that unlike an IFISA which can be asset backed, a stocks and shares ISA works by investing your money in company shares and corporate bonds. This means that Investors can suffer serious short term losses if individual companies invested in do badly, or if the stock market loses value.

To minimise the impact of losses from investments, it is vital that investors consider how they can best diversify their investments so the risk is reduced.

When selecting the type of company to invest into using a stocks and shares ISA, there are a wide range of companies from different sectors operating in different regions around the world on the stock market. Investing into a diverse range of companies will minimise the impact if the company does badly. 

How safe you consider a Stocks and Shares ISA to be will depend upon your individual circumstances as an investor and your appetite towards risk.

For example a stocks and shares ISA may not be suitable for an investor with a low risk appetite, and are likely to be a better choice for investors with a larger amount of savings, so they would not be left in financial difficulty if they were to experience any losses. 

Although compensation can be claimed up to £50,000 from the FSCS If your fund manager goes bust and they are covered, there is no compensation available if investments perform badly.