If you’re thinking of investing money for the future, you may be thinking of investing capital into a stocks and shares ISA. This is a popular investment around the world for mFinancial Advisor UKions of savers, with a wide range of products to choose from – from stocks and shares themselves, to bonds, commercial property, gold and government gilts.
Always bear in mind that there are no guaranteed successes when you invest in stocks and shares. Company share prices could fall, or political/financial or other types of global events can affect commodities markets. This will cause the value of your ISA to fall. You should always consider the level of risk you’d like to take when investing in stocks and shares ISAs, as you could lose some, if not all, of your money if you do not invest wisely.
Are you thinking of investing in a stocks and shares ISA, but require guidance? Financial Advisor UK offers a national network of fully FCA-registered and approved financial advisors and a unique matching service to pair you with the right advisor for your needs. We can ensure you get the best professional advice, along with the best deals available.

Eligibility criteria for stocks and shares ISAs

To hold a stocks and shares ISA, you must be 18 years old or more. If you take out a stocks and shares ISA with one provider but end up unhappy with the deal, you can switch to another provider. All stocks and shares ISAs must allow savers the option to transfer out, but they are not obliged to allow transfers in. Always check before you transfer. You can cash in on your stocks and shares ISA at any time. It is however recommend that you keep your investment for at least five years to see some kind of return before cashing in.

Is a stocks and shares ISA for me?

It is worth investing in a stocks and shares ISA if you are happy to put money away to protect yourself from being taxed on it. It is likely that you’ll have your money invested away for at least five years, so you’ll need to make sure that you don’t require access to it. An ISA is also a good idea if you are okay with the idea that your investment could go up or down, and that there is an element of risk.

What investments are held in stocks and shares ISAs?

There are many types of investments that can be held in stocks and shares ISAs, including investment trusts, exchange-traded funds, stocks and shares, corporate bonds, government bonds, open-ended investment companies and unit trusts. All these types of products are offered and traded in their own right.
You have an allowance of £20,000 a year that you can pay into an ISA. You can decide to put this into a stocks and shares ISA, a cash ISA or both if you wish. You can also put savings into a lifetime ISA. It isn’t possible to put money into the same type of ISA in the same tax year. You have to wait a year if you want to put money into two stocks and shares ISAs (for example). At the end of the tax year, your annual allowance for an ISA expires, so any unused allowance is lost and can’t be taken over to the following year.
It is also possible to choose between making contributions to your ISA throughout the year, or doing it all in one lump sum. Any increases in the value of your investments is free from capital gains tax, and most income is also tax free. It is possible to open a new ISA with a new provider each year if desired – you don’t have to stick to the same provider. It is always worth comparing the market to find the right kind of ISA for your needs. If you need help comparing the market, Financial Advisor UK can help. We can match you to a fully FCA-registered and approved financial advisor who can help you compare products and find the best deal.

Tax on stocks and shares ISAs

Stocks and shares ISAs are designed to protect your investments from income and capital gains taxes. For instance, if you invested in a share fund that made you a profit, you’d have to pay capital gains tax on the sum you had made. If you invest the profit into a stocks and shares ISA, you can avoid such taxes, and any losses made by your ISA can be used to offset any gains on your other investments. A stocks and shares ISA can also minimise the amount of tax you pay on rental income, interest on bonds or gilts or commercial property.

Active and passive: what is the difference?

You can only pay into one stocks and shares ISA per tax year. You can decide whether to do this in instalments, or in one lump sum to the value of £20,000. It is possible to switch from one ISA to another if you are unhappy with how an ISA is performing. Savings from previous years can be split, but switching the current tax year’s ISA must be done in its entirety (the full fund). It is advisable not to cash in an ISA and then invest in a new one straight away. Request a transfer so that you can maintain your tax breaks.

Stocks and shares ISAs fall into either active or passive categories. Active funds are controlled by a manager that selects stocks and finds the best way to constantly raise their value. Passive funds follow an index like the FTSE 100, and can go up or down in line with the market. Active funds carry charges for the management of the fund, which can be up to 1.5%. It is possible to purchase an ISA directly from a bank or an ISA manager, or to choose a self-select ISA – but this is a complex process and you should have considerable financial investment experience or knowledge before doing this. Management fees and charges are normally reduced if you invest directly through a broker. A stocks and shares ISA manager should be regulated by the Financial Services Compensation Scheme, which means that if the firm goes bust, you can claim up to £50,000 in compensation.

There are lots of options and ISA products to choose from, therefore it is recommended that you appoint an independent financial advisor who can guide you based on your current financial circumstances. With Financial Advisor UK, you can be instantly matched with FCA-regulated advisors that suit your requirements.