Stocks and shares Isas explained What is a stocks and shares Isa?

What is a stocks and shares Isa?

Stocks and shares Isas are different from cash Isas – which are just tax-free savings accounts. 

A stocks and shares Isa is a tax-efficient investment account that lets you put money into different types of investments, including unit trusts, open-ended investment companies (OEICs) and investment trusts, as well as government bonds and corporate bonds. 

You can also buy individual company shares and put them into your Isa. So unlike with cash Isas, you should only invest if you are prepared to take the risk that your investments can go down as well as up in value.

If you're looking for a cash Isa, the Which? savings and Isa comparison tables let you search all available savings accounts and Isas from all available providers to choose the best savings rates based on quality of service as well as cost and benefits.

Go further: Which? savings and Isa comparison tables - compare the best deals on the market

How much can you invest in a stocks and shares Isa?

From 1 July 2014, it has been possible to top up Isas for the 2014-15 tax year to a new limit of £15,000. And under new rules, it is possible to split your Isa allowance between cash and stocks and shares with no maximum cash component. The ratio of cash to stocks and shares is up to you.

Go further: The new Isa rules - our comprehensive breakdown of the changes made to Isas from July 2014. 

The tax advantages of stocks and shares Isas

Buying share-based investments (such as unit trusts and OEICs) within an Isa is only likely to save you tax if you're earning income from your investments, or are likely to pay capital gains tax. Everyone in the UK has an annual capital gains allowance, which is £11,000 for the 2014/15 tax year.

So as long as you don't make gains of more than £11,000 in 2014-15, you'll have no tax to pay when you sell your investment, even if it's outside of an Isa. 

If you earn dividends from your investments, outside of an Isa, you will pay tax of 32.5% if you're a higher rate taxpayer and 37.5% if you're an additional rate taxpayer - although 10% of this is automatically deducted before you receive the dividends. 

If you're investing via an Isa, however, you will only pay 10% tax on the dividends - and won't have to pay any additional tax. Basic rate taxpayers also don't need to pay additional tax on dividends, regardless of whether they hold the assets within a stocks and shares Isa or not. 

If you use your stocks and shares Isa to invest in interest-bearing investments, like corporate bonds and gilts, the interest is tax-free whatever tax band you fall into.

Go further: The Which? investment portfolios - get the right mix of investments with our handy tool

Charges for investing in a stocks and shares Isa

The costs of investing within a stocks and shares Isa will vary, depending on what you invest in and which provider you use, but charges aren't usually any higher than those you'd pay if you invested outside an Isa.

Many investors who are happy to make their own investment decisions without advice opt to use a fund supermarket for their stocks and shares Isa investments. These services, which allow you to invest in a vast range of investments, levy either an annual percentage charge based on the value of your investments or a fixed fee in pounds and pence.

Some of the investments that you might place into a stocks and shares Isa, like unit trusts and OEICs, also come with ongoing charges.

Go further: Fund supermarket reviews - we have reviewed 14 of the major players in this market

Transfers allowed 

You are able to transfer your previous years' cash Isas into stocks and shares Isas without affecting your current year's Isa allowance. You can also transfer your current year's cash Isa to a stocks and shares Isa, provided you transfer the whole amount.

If you already have a stocks and shares Isa and want to transfer it to a new provider, or convert it to a cash Isa, you can do so. You will need to contact your new provider and complete a transfer form.

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