What are stocks and shares ISAs?

A stocks and shares ISA (Individual Savings Account) is a type of tax-efficient investment account. It allows individuals to invest in a wide range of assets, such as stocks, shares, bonds, and funds, without having to pay capital gains tax on the returns generated within the account. Most income from your stocks and shares ISA is also tax-free.

  • Stocks and shares ISA provides a wide range of investment options. You can choose individual company stocks, exchange-traded funds (ETFs), mutual funds, government bonds, corporate bonds, and other financial instruments. This diversity allows you to create a diversified investment portfolio based on your risk tolerance and financial goals.
  • You have a total tax-efficient allowance of £20,000 for this tax year. This means that the sum of money you invest across all your ISAs this tax year (Cash ISA, Stocks & Shares ISA, Lifetime ISAs, Innovative Finance ISA, or any combination) cannot exceed £20,000.
  • You can transfer your existing ISA from one provider to another without losing the tax benefits. Transferred amounts also do not impact this year’s allowance of £20,000. This allows you to take advantage of better investment opportunities or lower fees offered by different ISA providers.
What are the benefits?

The benefits of a stocks and shares ISA compared to a typical savings account are:

  • Higher potential returns – savings accounts can offer low-interest rates, while investments in a stocks and shares ISA have the potential for higher returns over the long term, albeit with higher risks.
  • Tax efficiency – capital gains generated within an ISA are exempt from tax. Most income from your stocks and shares ISA is also tax-free. This can significantly enhance the overall returns on your investments compared to investing outside of an ISA, especially if you are a higher-rate taxpayer or have substantial investment gains.
  • Diversification – ISAs provide access to a wide range of investment opportunities, which enables you to diversify your portfolio and spread risks.
  • You can sell the assets held in your ISA at any time and there’s usually no minimum length of time you need to hold it.
How do you set one up?

Setting up a stocks and shares ISA:

  • Different ISA providers to find one that offers the investment options and services you need. Charges might vary for the same product depending on where you buy it.
  • You can apply for a stocks and shares ISA online or through a paper application, depending on the provider’s options.
  • Once your ISA is set up, you can choose the investments you want to hold within the account. Consider your risk tolerance, investment goals, and time horizon when making these choices.
  • Determine an affordable amount to contribute each month based on your financial situation and goals. Regular contributions can help with pound-cost averaging, where you buy more units when prices are low and fewer when prices are high, potentially reducing the impact of short-term market volatility.
What are the risks?

Risks and considerations:

  • Investments in stocks and shares are subject to market fluctuations, and the value of your portfolio can go up or down. There is no guarantee that you will make a profit.
  • While diversification can reduce risk, it does not eliminate it entirely. Some investments may still perform poorly, affecting your overall portfolio.
  • Investing in the stock market should generally be considered a longer-term endeavour. Short-term fluctuations can be significant, and selling during market downturns could lead to losses.
  • Consider your risk tolerance carefully. If you are uncomfortable with the possibility of losing some of your investment, a stocks and shares ISA might not be the best option for you.
  • Don’t solely rely on past performance as an indicator of future results. Investments can be volatile, and historical returns are not guaranteed to repeat.

A stocks and shares ISA can offer the potential for higher returns compared to a typical savings account, thanks to its tax efficiency and diverse investment options. However, it comes with market risks and requires careful consideration of your financial goals and risk tolerance. Before making any investment decisions, it’s advisable to consult with a qualified financial adviser who can provide personalised advice based on your individual circumstances.

To discuss any of the issues raised in this article, please contact your adviser, or call us directly on 0161 819 1131. Further information can also be found at gov.uk.

Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.

The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning, trusts or will writing.

The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice.

Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

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