Investing Accounts

What is a Stocks & Shares ISA?

The tax-efficient way to invest in shares and funds. Your first port of call. Make the most of your Stocks & Shares ISA allowance and help your money go further.

Understanding Stocks & Shares ISAs

Firstly, an ISA stands for Individual Savings Account. It is a tax-efficient home or ‘wrapper’ for your money. Your currently annual ISA allowance for the tax year 2020/2021 is £20,000 – this can be split between different types of ISAs (such as a Cash ISA or a Lifetime ISA).

However, when it comes to buying shares and funds – a Stocks & Shares ISA is the ISA of choice. This ISA will alllow you investments to grow free of capital gains tax and tax on dividends. It’s a no-brainer!

Helpful Points to Know

Stocks & Shares ISAs are hugely popular, with their tax advantages, it is easy to understand why. Some helpful points to understand:

  • A Stocks & Shares ISA is a ‘wrapper’ or a ‘home’ for your investment. It is not the actual investment themselves.
  • You can only pay into one Stocks & Shares ISA per year, but it is possible to open a new ISA per year with a different provider.
  • Your ISA allowance relates to the amount you invest, not the value of the investment itself. You can spread your £20,000 allowance across different types of ISA such as mixing between a Stocks & Shares ISA and a Cash ISA.
  • Increases in the value of your investments are free of capital gains tax. Likewise, dividends are not taxed.
  • You can’t pay into two Stocks & Shares ISAs in the same year.

Opening a Stocks & Shares ISA – Online Platforms

As with buying shares and buying funds, the most cost-effective and efficient way to open a Stocks & Shares ISA is through an online platform or ‘fund supermarket’. You will gain access to a mass of choice.

There are a couple of key charges to take note of when opening a Stocks & Shares ISA. These are the annual platform charge (usually a % on the value of your investments), the fund manager charge (usually a % and levied by the fund manager) and also the dealing charge (usually a tiered fee per trade for dealing in shares or funds).

Many providers exist in the market, ranging from those listed on the London Stock Exchange through to small, independent start-ups. The combination of cost, service and functionality is likely to dictate your choice, depending on your needs.

Selecting Investments – Painting your Canvas

So you’ve opted to open a Stocks & Shares ISA, now it’s time to select what to put in it. Your chosen platform will provide you with a wave of ideas. However, it’s important that you make a completely informed decision on what to invest in. It’s your money.

Whether you pick and choose particular shares, an income fund or tracker fund, the choice is yours. The Stocks & Shares ISA is just the tax-efficient canvas, it’s up to you to decide how to paint it!

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