Accessibility links

Article

The rules of a stocks and shares ISA

Understanding the rules of stocks and shares ISAs could help you make the right tax-efficient decisions for your financial situation.

5
0
Topic: Investing, ISA

A stocks & shares ISA is a tax-efficient individual savings account that allows you to put your money into a wide range of investments. These can include:

  • Shares in companies
  • Investment funds
  • Corporate bonds
  • Government bonds

There are different types of ISA, which all enjoy tax advantages. A stocks and shares ISA is different from other ISAs in the opportunity it offers to grow your money. While there is more risk, there is also more growth potential.

How do stocks and shares ISAs grow in value?

While most people understand how cash ISAs grow in value through interest, a stocks and shares ISA can seem more mysterious. The world of investing has an exclusive reputation for only benefiting a privileged few, but stocks and shares ISAs are widely available to UK residents aged over 18, making it much more accessible.

Stocks and shares ISAs generate returns in three ways:

  • Capital gains: Returns generated by buying and selling stocks and shares are called ‘capital gains’.
  • Interest: If you invest in corporate or government bonds, these typically have a fixed interest rate that you’ll receive periodically.
  • Dividends: If you invest in shares in companies (either directly or through an investment fund) you might receive dividends when they make a profit.

What are the tax advantages of stocks and shares ISAs?

Like all ISAs, a stocks and shares ISA can give you tax breaks on some of the money you make.

The tax-efficient aspect of a stocks and shares ISA is particularly relevant because when you invest, there’s a chance you’ll see higher returns than through saving (there’s also a chance the value of your investments could go down, but this is not related to tax).

The tax benefits of ISAs (2018/2019) are:

Capital gains of over £11,700 are usually taxable, but in an ISA, they won’t be.

Interest is usually taxable as income, but in an ISA, it won’t be.

Dividend income of more than £2,000 is usually taxable, but in an ISA it won’t be.

When you first open a stocks and shares ISA you might not be close to exceeding your capital gains and dividends allowances, but if you invest your full ISA allowance every year, it’s possible you’ll use these benefits sooner than you think.

It is important to remember that the tax advantages of ISAs may change in the future and also depend on your individual circumstances.

What is a stocks and shares ISA allowance?

In any tax year you have one ISA allowance, which can be split across several different types of ISA, or used in just one if you prefer. For the 2018/2019 tax year this is £20,000, which renews on the 6th April.

What are flexible stocks and shares ISAs?

The Click & Invest ISA is a flexible stocks and shares ISA. This means you can withdraw money and pay it back in, in the same tax year, without it counting twice towards your ISA allowance.

Not all stocks and shares ISAs are flexible. So, with a non-flexible ISA, if you pay in £15,000, withdraw £5,000, and then repay the £5,000 within the same year, you’ve used your full ISA allowance. With a flexible ISA, if you pay in £15,000, withdraw £5,000 and then repay £5,000, you still have £5,000 allowance remaining if you’d like to pay in more. It’s something to consider when you choose your provider.

What rates can I expect for a stocks and shares ISA?

There are some fees involved in owning a stocks and shares ISA.

You’ll usually pay one fee to your provider, for managing your ISA. This fee will be taken from your ISA and shown on your statement. It varies between providers and tends to be related to how much management is involved in their service.

If you invest in investment funds, there’s also a charge taken by the managers of those funds. Again, these vary – passive funds, which just track a particular index, tend to have lower charges than active funds, where a team of people are involved in implementing a strategy that aims to beat the market. Read more about active vs passive investing.

Some providers charge other fees, for example, platform fees, transaction fees or commission. But you won’t find those at Click & Invest.

At Click & Invest, leading managers carefully build your portfolio around your financial needs, with the craftsmanship of 180+ years of experience and a world of experience. Here’s where you can find out about our fees.

Who can have a stocks and shares ISA?

To open a stocks and shares ISA you simply need to be a UK resident for tax purposes, and be 18 years of age or older. This is slightly different to a cash ISA, which you can open from the age of 16.

You can have a stocks and shares ISA even if you’re already paying into a cash ISA, if you have remaining ISA allowance.

If you’re already paying into a stocks and shares ISA, you can’t open a second one in the same tax year, but you can transfer your existing stocks and shares ISA to a new provider, if you’d like.

Opening or transferring a stocks and shares ISA

If you have £2,500 or more to invest, you can open a Click & Invest stocks and shares ISA. Our portfolios are actively managed by experts, who scrutinise tens of thousands of investment opportunities so you don’t have to.

Once open, you can easily transfer in any existing cash ISAs or stocks and shares ISA you have, putting your money to work in the hands of our experience investment managers.

If you’d like to open or transfer an ISA this tax year, make sure you don’t miss the ISA deadline of 5 April 2019.

With investment your capital is at risk. The tax advantages of ISAs may change in the future and also depend on your individual circumstances.

This article is not intended to constitute personal advice and no action should be taken, or not taken, on account of information provided. Opinions given within this article are the speakers’ own personal views. The views and opinions are effective from the date of publication but may be subject to change without notice.

No Comments
Read and post comments

    Post a reply

    Post a comment

    Contact Us

    0808 164 1234
    +44 203 866 1234

    Available 24 hours a day, 7 days a week