What is a Stocks and Shares ISA?

A Stocks and Shares ISA, also known as an Investment ISA, is an account which allows you to invest into a variety of funds, bonds and individual company shares without having to pay capital gains tax (CGT), and income tax on any dividends or profit from your account, up to a certain value 📈

ISA stands for Individual Savings Account and there are 4 main types available:

  • Stocks and Shares ISA
  • Cash ISA
  • Lifetime ISA
  • Innovative Finance ISA

They are all subject to an annual ISA allowance, which allows you contribute a maximum combined amount of £20,000 across these accounts every tax year💰

You can invest all your allowance into one or more Stocks and Shares ISAs or spread it across your different ISA accounts, but you must stay within the annual ÂŁ20,000 limit. The UK tax year runs from April 6th to April 5th in the following calendar year.

A Stocks and Shares ISA is often seen as a long-term strategy by investors to help make their money work harder than it would in a cash savings account. However, it is important to understand that your money is at risk when opening a Stocks and Shares ISA, because the value of your investments can go down as well as up.

You should only invest if you’re prepared to take the risk, and make sure to read handy articles like this to help you make a fully informed decision.

If you’re new to investing, why not brush up on the basics and get to know when investment is the right choice for you, with our beginner’s guide to investing.

How to find the best Stocks and Shares ISA

Whilst finding the best Cash ISA is primarily a case of comparing the most competitive rates, choosing the best Stocks and Shares ISA depends more on how you want to invest and the service you would like to receive.

Before choosing an ISA provider, make sure to consider your investment priorities and think about the features you want or need in a provider, such as:

  • Choice of investments
  • Customer service
  • Ease of use
  • Management fees
  • Fund provider fees
  • Transfer or account closure fees

Bear in mind the cheapest Stocks and Shares ISA service might not always be the best option for you. If you’re new to investing, you might want to choose a provider that is more straightforward to use and covers the key foundations for a portfolio , as opposed to a more complex service that provides so much information and choice that it could be overwhelming. 

Along with ease of use, make sure to think about how ‘hands-on’ with your investments you’d like to be 👋 Trading individual stocks can become time consuming and require a lot of research. You might prefer to take a more passive approach and invest in a platform, such as Plum, which manages your investment funds for you.

Plum also automates the investment process with the Splitter, meaning you don’t have to constantly remember to make manual deposits, as the app does this automatically based on your preferences. It’s simple to open an account and you can start investing from just £1.

With all of this to consider, you might find it useful to use a comparison site to weigh up all your options. For some extra support, you could always seek advice from an independent financial advisor. Financial advisors can offer impartial advice to help you pick the right platform and investment strategy for you, however bear in mind, this will also come at a price.

Can I have more than one Stocks and Shares ISA?

Yes. Prior to this tax year, you could only open one ISA of each type, each tax year. But now you can open and pay into multiple ISAs of the same type in the same tax year (except for lifetime ISAs), as long as you don’t go over the maximum combined ISA allowance of £20,000 across all your ISA accounts. This means you could put money into two or more stocks and shares ISAs and/or two or more cash ISAs. However, it’s important to keep track of your contributions to ensure you don’t go over your overall £20,000 ISA allowance.

Before you open a new account, don’t forget that your ISA allowance resets each tax year, so you can continue to contribute to the same account without having to open multiple ISAs.  Having numerous ISAs may make it more challenging to manage your investments and you may end up paying higher fees. These costs can impact your long-term investment returns, so you may want to check what you’re paying before deciding where to put your money.

Can you transfer Stocks and Shares ISA to another provider?

It should be relatively straightforward to transfer your Stocks and Shares ISA to a new provider, but there are a few things to consider.

First, do your research to find the best Stocks and Shares ISA for you. A different ISA provider could offer lower fees and dealing commissions, or you might prefer the investment funds available, so make sure to shop around 🛍

When looking to transfer, check your current provider’s policy on exit fees, as they could charge a sizable fee per transferred stock. However, this might not be an issue if you’re prepared to haggle, as many ISA providers offer to pay these charges for you as an incentive to switch đŸ€‘

Next, decide if you want to complete the switch as a cash, or in specie transfer.

In specie transfer

Sometimes known as re-registration, an in specie transfer simply means all of your investments are transferred to your new provider and you stay invested throughout the process.

If you’re happy with the state of your current investments, this is a great option, as you won’t lose any time in the market. However, an in specie transfer can sometimes take a number of weeks, and might come with exit charges or stock transfer fees.

Cash transfer

Alternatively, you can opt for a cash ISA transfer, which is where your investments are sold and the cash is transferred to your new provider đŸ’”

This is typically quicker than an in specie transfer, and it gives you an opportunity to start fresh with your portfolio as your new provider will reinvest your money based on your instructions.

However, your money will be removed from the market for a short period of time due to the transfer, which means if any of your shares go up in value, you could miss out on any potential gains.

Once you have decided on your Stocks and Shares platform and the type of transfer, it’s time to contact your new provider. This is just a case of downloading the transfer forms, completing, and sending them off. Bear in mind most providers will ask for a physical copy to be printed and sent through the post 📬

If you decide to transfer your ISA, any money from previous tax years won’t count towards your annual allowance, so you can move some or all of your cash over and continue to make contributions to your £20,000 limit. However, while anything invested in the same tax year can be transferred partially (if the new provider allows for this) or in full, it will still count towards your yearly allowance.

Withdrawing money from Stocks and Shares ISA

Withdrawing from a Stocks and Shares ISA is possible. You can sell the shares and funds you have invested in through your ISA provider and transfer the cash to your bank account. However, you may need to check with your individual provider if there are any fees or terms and conditions for making a withdrawal.

If the Stocks and Shares ISA is a flexible ISA, you can return the money back into the ISA in the same tax year and not impact your ÂŁ20,000 allowance. However, if your Stocks and Share ISA is not flexible,you may lose out on some tax benefits if you withdraw money.

For example in a non-flexible ISA: you invested the maximum £20,000 yearly ISA allowance, but later decide you want to withdraw £5,000 for a holiday 🏝 However, you were forced to cancel your holiday and so you want to reinvest the £5,000 back into the ISA. Unfortunately, because you had already invested the yearly maximum allowance of £20,000, you would have to wait until the start of the new tax year to put the money back ⏰ By withdrawing the money you might have missed out on potential returns, had your investments performed well.

With this in mind, it is worth thinking about the timings of your withdrawals and if you can afford to leave the money in the ISA, so you can make the most of your yearly allowance and tax benefits.

Cash ISA vs Stocks and Shares ISA

Deciding on a Cash or Stocks and Shares ISA will depend on your personal financial situation and goals.

When it comes to organising your personal finances, you may want to start an emergency or rainy day fund for those occasions when an unexpected bill or expense appears. A Cash ISA is a great place to store some rainy day savings as you can steadily accrue a return whilst also retaining quick and easy access to your money to help you weather any financial storms which might come your way ☔ Cash ISAs are a good way to help you build a short-term financial safety net, however long term they might not be the best solution if you want to protect your savings from the effects of inflation.

A Stocks and Shares ISA is considered a longer-term saving strategy, with the general consensus amongst financial experts being that you should look to leave your money invested for at least 5 years. If you can afford not to touch your savings, investing in a Stocks and Shares ISA could be a preferable option as there is a greater potential for returns, (compared to a Cash ISA), however your money is at risk if you invest it.

As with all investing, the value of your investments can go down as well as up, so make sure to do your research and check your finances are in order, before you take on any risk.

There is no right or wrong answer, but your decision should boil down to a few core factors. Are you prepared to take on the risks involved with investing, and when do you think you’ll need to access the cash?

How to open a Stocks and Shares ISA

There’s a lot of choice when it comes to opening a Stocks and Shares ISA. You can open an account directly from an ISA provider, a fund manager, a bank, or through a financial adviser or online share account.

Most Stocks and Shares ISAs charge platform or fund management fees, and some, but not all, may charge for transfers or selling shares, so don’t skip the small print 📝 With all this choice, it’s important to do your research and sift through the providers to find the best fit for your individual circumstances and financial priorities đŸ€“

Once you’ve done your research and picked your provider, it’s time to open your Stocks and Shares ISA. To open a Stocks and Shares ISA you must be 18 or over and a UK resident, (for tax purposes) and able to provide a few personal details such as address, national insurance and date of birth. You may also need to provide some form of ID and proof of address.

You can open an account at any time during the year and the process is relatively simple, especially if you use an app like Plum where you can create your investment profile in a few minutes âšĄïž

Investing with a Plum Stocks and Shares ISA

You can use an app like Plum to open a Stocks and Shares ISA to help simplify the process and build your confidence with investingđŸ“± Rather than expecting you to pick specific stocks, we’ve done the hard work for you, and instead offer a range of investment ‘funds’. These funds are professionally managed portfolios containing many different securities (normally a mixture of stocks and bonds).

Our splitter tool allows you to automatically apportion deposits between your Plum savings and the investment funds you’ve previously chosen. Not only does this make the process easier for you, but it also promotes good investing practice
 as it’s never a good idea to have all your eggs in one basket 🐣

Plum Stocks and Shares ISA vs SIPP for retirement

If saving for the long term is a priority, it may be worth thinking about your future lifestyle fund, otherwise known as a pension. Saving for retirement can help secure your financial future, and the earlier you get started the better đŸ‘”

One way to do this is to open up a Self Invested Personal Pension*, or SIPP for short. A SIPP is a type of personal pension that allows you to manage your investment options and save for your retirement pension pot in a tax-efficient and flexible way. It can be a great way to top up your UK state pension and take advantage of the tax benefits offered by the government, as well as control exactly where your money is being invested.

It’s really easy to create a SIPP yourself using an app like Plum.

Regulated by the independent financial services regulator, the Financial Conduct Authority (FCA), Plum allows you to consolidate your previous pensions by transferring them all into one single, simple account.

SIPPS are offered by Plum Money, which has appointed Quai Investment Services Limited (Quai) to act as the Product Provider. Quai are required to supply important information to help you to decide whether this product is right for you. You should read this document carefully so that you understand what you are buying and keep it safe for reference.

If you'd like to learn more about Plum then you can check out our website.

Remember when investing in a SIPP, your capital is at risk. That means investments can rise and fall in value, so it’s possible to get back less than you pay in.

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Did you know you can open a Lifetime ISA as a Cash ISA or Stocks and Shares ISA? For more information read our earlier article on What is a Lifetime ISA?

*A SIPP is a pension product designed for people who want to make their own investment decisions. You can normally only access the money from age 55 (57 from 2028). Before transferring a pension please ensure that you will not lose valuable guarantees or incur excessive transfer penalties. Plum does not provide advice and individual investors should make their own decisions or seek independent advice.