Stocks & shares ISAs

Stocks & shares ISAs
Learn more about ISA and investment platforms

In the 2024/25 tax year, every adult is allocated a £20,000 ISA allowance. However, if you don’t utilize this allowance by 5 April, it will expire. You can use some or all of this ISA allowance to invest in the stock market. This guide provides essential information you should be aware of before investing in a stocks & shares ISA.

Stocks & shares (S&S) ISA platforms to try

• Do-it-yourself S&S ISAs
• Managed and robo-adviser S&S ISAs

There are no guarantees when you’re investing

Investing comes with risk, as the value of your investments can go down as well as up. If you decide to do it, it’s recommended you invest for the long term (five years or more), as the longer you invest, the longer you have to ride out any bumps in the market.

What is a stocks & shares ISA?

In the UK, every adult over 18 has a yearly ISA allowance. For the tax year 2024/25, which runs from 6 April 2024 to 5 April 2025, this allowance is set at £20,000.

This ISA allowance can be fully or partially utilized to invest in a stocks & shares ISA. This type of account allows you to invest in a variety of assets, including funds (which combine shares or bonds from different companies into one investment), bonds (essentially loans to companies or governments), and shares in individual companies. The benefit of a stocks & shares ISA is that you don’t have to pay tax on any dividends, capital gains, or income earned from these investments.

A stocks & shares ISA is very different from a cash ISA, which is just a savings account you never pay tax on.

If this is your first experience of investing, read our Beginners’ guide to investing to get a broader idea of what’s involved.

You can put up to £20,000 in to a stocks & shares ISA each year, but this limit’s lowered if you’re also paying in to other types of ISA

ISA regulations govern the amount you can contribute, allowing up to £20,000 tax-free each fiscal year. This £20,000 cap is shared across all types of ISAs you hold. For instance, if since 6 April 2024 you’ve deposited £10,000 into a cash ISA and £4,000 into a Lifetime ISA, you can only contribute £6,000 to a stocks and shares ISA for that tax year.

When the £20,000 limit refreshes on 6 April 2025, you have the option to allocate the full 2025/26 ISA allowance to your stocks and shares ISA. However, if you choose this route, you won’t be able to make contributions to any other type of ISA during that tax year.

Some ISA rules have changed. From 6 April 2024, the UK Government made some changes to the ISA rules. These include:

• The age you can open a cash ISA increased from 16 to 18.
• You are now allowed to subscribe to multiple ISAs of the same type within the same tax year.
• Partial transfers of current year ISA subscriptions are now allowed.

Due to the complexity of making these adjustment, some ISA managers have yet to implement these changes.

Allowances for capital gains tax (CGT) and dividends have been lowered. Any gains are tax-free in a stocks and shares ISA. However the tax allowances for interest earned outside an ISA were lowered on 6 April 2024. The threshold for paying capital gains tax is now £3,000 (was £6,000) and the dividend allowance is £500 (was £1,000).

Other ExEconomics ISA guides…

Cash ISAs: All the best deals, plus help choosing.
Full ISA guide: For everything you need to know about ISAs.
Lifetime ISAs: Get a 25% bonus on your savings.

Stocks & shares ISA need-to-knows

1 – A cash ISA may be better if you want a short-term option and don’t want to risk losing any money

Choosing between a cash ISA and a stocks & shares ISA hinges on your comfort with investment risk and your timeline for accessing the funds. Simply put:

• Happy to risk losing money and don’t need the cash for at least five years? Investing could be right for you, so consider a stocks & shares ISA.
• Happy to risk losing money but need access sooner? Investing is typically a long-term endeavor, making a cash ISA a solid choice. If you’re able to set aside funds for a minimum of five years, consider diversifying your investments by allocating some of your money to both a cash ISA and a stocks & shares ISA.
• Not happy to risk losing money? Stick to a cash ISA – though of course, if the interest rate’s lower than inflation this could still mean you end up losing money in real terms.

2 – You should invest for the long term to ride out any bumps in the market

Deciding whether to invest hinges on your individual situation and your tolerance for risk. Generally speaking, it’s advisable to commit your funds for a minimum of five years. This timeframe provides ample opportunity to weather market fluctuations and minimize potential losses.

As such, if you’re looking to use your money within the next few years, you should probably stick to cash savings. See our Top Savings and Top Cash ISAs guides for more.

It’s crucial to recognize that the notion of a “best” stock or share investment is a myth. Historically, stocks and shares have generally provided better returns compared to savings accounts over extended periods. However, this past performance doesn’t ensure future success. It’s essential to keep in mind that investments carry the risk of decreasing in value as well as increasing.

The five golden rules of investing:

1. The greater return you want, the more risk you’ll usually have to accept.
2. Don’t put all your eggs in one basket. Consider spreading your investments across various industries or countries. This strategy, known as diversification, can reduce your risk exposure. The rationale is that if one sector or country performs poorly, the others might perform well, helping to maintain the overall value of your stocks and shares ISA.
3. If you’re saving over the short term, it’s wise not to take too much of a risk. It’s recommended you invest for at least five years. If you can’t, cash is often best.
4. Review your portfolio. A fund could underperform, a fund manager might depart, or you might find yourself less inclined to take on risks than before. Without regular portfolio reviews, you risk having your stocks and shares ISA lose value.
5. Don’t panic. Investments can go down as well as up. Don’t be tempted to sell or buy funds just because everyone else is.

3 – You can invest in almost anything in a stocks & shares ISA but most investors stick to shares and funds

Investing offers a wide array of options…

From conventional choices like stocks, bonds, and mutual funds to more unusual ones such as agricultural land, classic automobiles, and fine wines, the spectrum of investment opportunities is vast. Despite this variety, most investors tend to focus on stocks and funds.

Here’s a breakdown of how stocks and funds operate:

Shares: A share represents a fractional ownership in a company. For instance, if a company has a total value of £100 million and is divided into 50 million shares, each share is valued at £2 (or 200p). The value of these shares fluctuates due to various factors.

Companies issue stocks to generate capital, and investors purchase these stocks with the expectation that the company will prosper, thereby sharing in its success. For a comprehensive understanding, refer to our Shares guide.

Funds: Typically, a fund serves as an alternative method for purchasing shares. Instead of acquiring a portion of a company directly, you invest your money with a professional manager who consolidates it with contributions from other investors. This pooled capital is then used to acquire a variety of shares in the stock market, representing numerous companies. This approach spreads out the risk compared to investing in a single company’s shares.

Funds are divided into ‘units’, which you need to purchase to invest. The price of these units fluctuates daily. The value of each unit can increase, decrease, or remain stable based on market demand for the fund and the performance of its underlying investments. For illustration, if you invest £1,000 in a fund where each unit is priced at £2, you would acquire 500 units. After six months, if the unit price rises to £2.50, your investment would then be worth £1,250. For a detailed overview, check out our Funds guide.

Why do some funds have a manager at the helm, while others don’t?

Funds can be active or passive:

• Active funds. An actively managed fund is overseen by a fund manager who selects the investments for the fund, with the goal of outperforming the market. The expertise of the manager is the key selling point, and as a result, these funds typically come with higher fees, reflecting the cost of their professional management.
• Passive funds. A passive fund operates without a dedicated fund manager. Instead, it tracks an index, such as the FTSE 100, which represents the performance of the top 100 companies in the UK.

What are the different ‘themes’ funds are invested in?

A fund’s theme could be anything from:

• Geography. For example, European, Japanese, emerging markets.
• Industry. For example, green companies, utility firms, industrial      businesses.
• Types of investment. For example, shares and corporate bonds.
• The size of the company. For example, a fund could be solely focusing on smaller to medium-sized companies.

The risk factor is determined by the combination of elements. When a fund targets “nascent biotech firms in developing markets,” it entails significant uncertainty across all aspects. Consequently, while a successful outcome could yield substantial gains, a poor result might lead to considerable losses.

What is an exchange-traded fund (ETF)?

An ETF is generally a passively-managed investment fund that allocates its assets across a specific sector or market index. Its primary goal is to mirror the performance of the chosen index. Like individual stocks, ETFs can be bought and sold on stock exchanges during market hours.

4 – The cheapest way to open a stocks & shares ISA is by going via a website often called ‘a platform’

You can acquire stocks and shares ISAs through various providers, including banks and building societies. However, the most cost-effective approach is often to use an online service known as a ‘platform.’ This guide focuses on that method.

Investing in a stocks and shares ISA involves two key steps:

1. Selecting the provider from whom you will purchase the ISA.
2. Choosing the specific investments to place within it.

Think of it like buying bread at a supermarket. First, you choose which store to visit (selecting the platform), and then you decide which bread to buy from that store (choosing your investments or funds).

Be aware that you will incur fees both for using the platform and for buying or holding the funds. To extend the analogy, imagine that each supermarket has its own pricing for shopping bags.

Different supermarkets offer varying prices for bags, and interestingly, those with higher-priced bags might also have the lowest prices on bread. Therefore, it’s important to consider both factors together when making a choice.

Additionally, keep in mind that although the platform fee is determined by the platform you select, the entity managing your funds will also impose its own charges.

5 – Any gains are tax-free in a stocks & shares ISA

Before you decide to use your ISA allowance for investing, it’s crucial to grasp what tax breaks are available and evaluate their significance for your situation.

You DON’T pay any capital gains tax (CGT) on gains made within an ISA – great if you exceed the £3,000 annual CGT allowance

Capital Gains Tax (CGT) applies to the profit you earn from selling assets such as shares, a second property (though selling your primary residence usually doesn’t incur this tax), and valuable items like jewelry.

For instance, if you purchase shares for £1,000 and later sell them for £1,500, your profit is £500. This profit may be subject to tax. However, it’s crucial to note that…

For the tax year 2024/25, you can make up to £3,000 in capital gains without incurring any tax, provided these gains are outside of an ISA. Thus, using a stocks & shares ISA would only be beneficial if your total gains for the year exceed £3,000.

If you have additional capital gains, such as from selling a buy-to-let property at a profit, you might exhaust your CGT allowance for that year. For details on the applicable CGT rates once your allowance is used up, refer to our Tax Rates guide.

You DON’T have to pay tax on any dividend income on shares held in a stocks & shares ISA

Investing offers two main ways to generate income. The first is by selling shares at a higher price than you paid, resulting in a profit. The second method involves earning dividends.

Dividends are similar to interest earned on a savings account. When a company is profitable, it returns some of that profit to shareholders, either regularly or as a one-time payment. Just like with savings interest, there’s a dividend allowance each tax year that lets you earn up to £500 tax-free. Earnings exceeding this amount must be reported to HM Revenue & Customs.

For dividends beyond this allowance, the tax rates are 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers, and 39.35% for additional-rate taxpayers.

However, dividends from shares held in a stocks & shares ISA are exempt from tax. Previously, there was a 10% tax deducted at source on these dividends, which couldn’t be reclaimed, making the ISA not entirely tax-free. This tax was removed in April 2016.

You DON’T pay any income tax on interest from corporate bonds in an ISA

When you invest in corporate bonds, you’re not directly supporting a company’s growth but rather lending it money for a specified period. In exchange, the company agrees to pay you interest.

However, this investment isn’t without its risks. There is a chance that the company might fail to return your principal or might not make interest payments. On the positive side…

If you hold corporate bonds or bond funds in an ISA and they generate interest, you won’t have to pay any tax on that income.

On the other hand, if your corporate bonds are held outside of a stocks and shares ISA, they will be subject to the personal savings allowance. Basic-rate (20%) taxpayers can earn up to £1,000 in interest before incurring tax, whereas higher-rate (40%) taxpayers have a £500 tax-free threshold. Additional-rate (45%) taxpayers do not benefit from a tax-free allowance.

Remember that this allowance applies to all your interest income, including that from savings accounts. Any interest earned beyond the allowance will be taxable.

6 – Your ISA allowance doesn’t roll over into the next tax year – so use it or lose it!

To ensure your investment counts for the current tax year, you must make contributions to your stocks and shares ISA by 5 April, the end of the tax year. Importantly, any unused portion of your £20,000 allowance for the 2024/25 period does not carry over to the next year—meaning if you don’t utilize it, you forfeit it permanently.

Funds that remain within the tax-free ISA environment will continue to accumulate interest and enjoy tax advantages until you decide to withdraw them.

As a result, it’s possible to accumulate a significant amount in ISAs. Since their inception in 1999, some individuals have invested over £200,000, though your personal total may vary based on the performance of your investments.

7 – Both the platform and the funds you invest in will cost you money – so know what fees you’re paying

Both the platform you use and the funds you invest in will incur fees—investing inherently involves some expense. Key charges to be aware of include:

• Platform charge. This situation is akin to purchasing a carrier bag at the supermarket, where some stores might charge 50p while others only ask for 10p. Similarly, fees can be structured as a fixed amount, which tends to benefit high-value investors, or as a percentage of your investment, making it more expensive if your investments are larger.
• Fund manager charge (also known as ‘annual management charge’). Any investments you place into that bag will incur charges—this includes the funds you invest. These charges are set by the manager of the fund within your stocks and shares ISA. The fee is generally a percentage of your holdings in that fund, and it can range from as low as 0.05% to over 1% per fund, depending on the specific fund you’re investing in.
• Selling/buying funds and shares. This represents the fee incurred each time you purchase or sell a fund or share on the platform, ranging from £0 to £25. If you simply select funds and hold onto them, these charges probably won’t impact you significantly. However, if you’re an active trader, prioritizing a low trading fee should be a key consideration.
• Transfer-out fee. Transferring your stocks and shares ISA from one provider to another incurs a cost, typically assessed per fund. Therefore, if you hold multiple funds within your ISA, the expense of transferring will increase accordingly.

Alternatively, you often have the option to liquidate your investments and move the funds as cash. This process is generally free of charge, though you might incur a trading fee when you sell your investments.

8 – Like any other financial product, keep an eye on charges to make sure you’re not overpaying

Understanding the different fees associated with stocks & shares ISAs will help you determine if your provider might be overcharging. Regularly reviewing your fees and charges is a good practice to ensure you’re receiving the best value.

A platform that initially offered low costs might no longer be as affordable due to changes in their fee structures. Before deciding to switch providers, check for any exit fees, and if these are minimal, transitioning to a provider with lower fees could save you money in the long run.

9 – Investing on a regular basis can help smooth out any ups and downs in the stock market

Attempting to ‘time the market’ can be alluring, but it’s nearly impossible to get it right consistently—even seasoned investors often miss the mark. By exiting the market whenever a stock falls or trying to predict when it will peak, you risk missing sharp rebounds or encountering further declines.

A more reliable approach is to invest regularly—this strategy is known as ‘drip-feeding’ in investment terms. This method helps to balance out market fluctuations and provides the advantage of ‘pound cost averaging.’

This is how it works…

If you put £10,000 into shares priced at £10 each, you would acquire 1,000 shares.

Conversely, if you invested £5,000 in the same shares each month for two months, totaling £10,000, you would purchase 500 shares in the first month.

However, if the share price decreased to £9.50 in the second month, you would be able to acquire 526 shares due to the lower price.

Thus, rather than the entire £10,000 investment being impacted by the price drop, only half of your investment is affected.

In this scenario, a single £10,000 investment buys 1,000 shares, whereas investing £5,000 each month for two months results in 1,026 shares. Regular, smaller investments can mitigate the effects of share price fluctuations.

10 – You can transfer to another stocks & shares ISA – just watch out for exit fees

If you already have a stocks and shares ISA and are considering transferring it to one of the platforms listed below to benefit from lower fees, make sure to check for any exit fees that might apply with your current provider before proceeding.

When switching to one of the platforms mentioned, you’ll need to execute an ISA transfer. Keep in mind that the new platform might not provide the same investment options as your current one. If you have a preferred fund you’re invested in, you’ll need to decide whether it’s more advantageous to stay with your current provider or move to a new one to enjoy reduced charges.

11 – If you’re no longer willing to take a risk with your money, you can transfer your stocks & shares ISA into a cash ISA

This information could be valuable for those approaching retirement or anyone looking to minimize their financial risk.

If you decide to proceed, you’ll need to reach out to your new cash ISA provider and inform them that you wish to transfer funds from your stocks & shares ISA. It’s important not to withdraw the money yourself, as doing so would forfeit all the tax-free advantages.

After initiating the transfer request, it may take several weeks to complete. If you are setting up a cash ISA with a different provider than your current stocks & shares ISA provider, you might incur a closing fee. However, if you’re switching to a cash ISA within the same provider, such fees are generally not applicable.

12 – You usually WON’T be the legal owner if you buy shares through a platform

When you use a platform to buy shares, you’re not making the purchase directly. Instead, you pay the platform to handle the transaction on your behalf. One advantage of this method is the ability to buy fractional shares, which might be too pricey to purchase in full on your own.

Typically, the platform or a nominee company will hold legal ownership of the shares, while you are considered a beneficiary owner. This means that if the platform were to go under, you would not have direct control over your shares. In such a scenario, your assets—such as shares or funds—would either be transferred to another broker or liquidated for cash, which would then be returned to you.

To protect your assets, most platforms employ a practice known as ringfencing. This ensures that your assets are kept separate from the platform’s own, theoretically safeguarding them even if the platform were to face bankruptcy.

Stocks & shares ISA platforms to try

At ExEconomics, investing isn’t our primary focus. Therefore, we don’t provide recommendations on the ‘best’ investment platforms or suggest specific top choices. Instead, we’ve compiled a selection of both budget-friendly and popular platforms, covering the two main categories: DIY and managed or robo-investment platforms. This way, you can start your own research to determine which option aligns best with your needs.

Do-it-yourself’ S&S ISA platforms to try

When using do-it-yourself investment platforms, it’s essential to conduct thorough research before choosing your investments, assemble your portfolio, and monitor its performance. Be mindful of all associated costs, including platform fees, fund expenses, trading commissions, and exit fees.

While we outline various costs, fund charges are not included in our summary. These charges can differ based on your selected fund and, to some degree, the platform you use, as some platforms secure lower fees through negotiations with fund managers.

The table below features a mix of budget-friendly platforms alongside well-known options to kickstart your research. Remember to keep a close watch on fees, as the most cost-effective choice for you will depend on your investment selections, the amount you invest, and your trading frequency.

DIY stocks & shares ISA platforms

(1) Fees based on up to 10 trades of UK shares per month, AJ Bell and Hargreaves Lansdown offer discounted rates for more frequent trades. You can trade overseas shares but expect to pay a currency exchange fee of up to 1%. (2) Min £10 deposit for deposits via bank transfer or min £1 via card. Deposits by card are fee-free up to £2,000, there’s a 0.7% fee above. (3) Vanguard cost comprised of a flat 0.15%/year account fee, plus 0.06%-0.79%/year ongoing costs and 0.01%-0.74%/year fund transaction costs.

Managed and robo-adviser S&S ISA providers to try

Managed S&S ISAs typically fall into two categories: those overseen by human experts and those run by automated systems, often referred to as ‘robo’ platforms.

Both options offer assistance in selecting an investment portfolio that aligns with your risk tolerance and investment objectives.

While these services generally come with a higher cost due to the convenience they provide, they often manage to keep expenses relatively low by selecting funds with minimal management fees.

With numerous managed and ‘robo’ platforms available, it’s crucial to conduct your own research. To aid in your decision-making, we have listed a range of platforms in the table below.

Managed and robo stocks & shares ISA platforms

Correct as of 6 August 2024. (1) Management fees based on investments of up to £100,000, there’s a lower fee for larger amounts with Nutmeg and Moneyfarm. (2) Total cost comprises fund charges + market spread.

Get free research to help choose a fund

We don’t cover what to invest in because we never want to have told you to put your money in something, only for you to lose money on it – though these sites do:

• Hargreaves Lansdown – helpful and easy-to-navigate site, including a ‘Wealth Shortlist’ – a collection of funds selected for their performance potential.
• Interactive Investor – includes beginners’ guides, a glossary of terms and tables showing the 10 top, bottom and most-traded funds via its platform each month.
• Bestinvest – a large range of free guides covering everything from how to spot the worst-performing funds, to the top-rated funds.
• Charles Stanley Direct – the market data section breaks down lists of FTSE companies and allows you to check performance for any time period from one day to three years, updated every 15 minutes.