Table of Contents
What is an Investment ISA UK
An Investment ISA UK, also known as a Stocks and Shares 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
You can only open one of each type of ISA and 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 an Investment ISA UK or spread it across your different ISA accounts, but you must stay within the annual £20,000 limit. The UK tax year runs from April 6th to April 5th in the following calendar year.
An Investment ISA is often seen as a long-term strategy by UK 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 (unlike a Cash ISA) 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 Investment ISA UK
Whilst finding the best Cash ISA is primarily a case of comparing the most competitive interest rates, choosing the best Investment ISA UK 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 Investment ISA UK service might not always be the best option for you. If you’re new to investing, you might want to choose a provider that offers lots of information to help with investment decisions, opposed to a more basic service which simply allows you to buy, sell and view your account.
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 it’s splitter tool, 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 Investment ISA UK?
You may only contribute to one Investment ISA in the UK within any given tax year. You could open a Cash ISA and contribute to this within the same tax year, as long as you don’t go over the maximum combined ISA allowance of £20,000 across these accounts.
You can, however, open a new Investment ISA with a different provider when the new tax year begins, after April 6th.
It is worth noting that if you decide to do this, you can only contribute to your new ISA account within that tax year, and not any existing ones.
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 Investment ISA UK account without having to open multiple ISAs. However, if you’re still thinking of switching ISA providers, you may be able to transfer your existing account, making it easier to stay on top of your investments and keep everything in one place.
Can you transfer Investment ISA UK to another provider?
It should be relatively straightforward to transfer your Investment ISA UK to a new provider, but there are a few things to consider.
First, do your research to find the best Investment ISA UK 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 sizeable 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 🤑
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.
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 💵
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 Investment ISA UK 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, anything invested in the current tax year will need to be transferred in full, and will count towards your yearly allowance.
Withdrawing money from Investment ISA UK
Withdrawing from an Investment ISA UK is relatively flexible. 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.
A key thing to remember about withdrawing from an Investment ISA is that you may lose out on some tax benefits if you do so.
For example; you invested the maximum £20,000 yearly ISA allowance, but later decide you want to withdraw £5,000 for a holiday 🏝 However, due to COVID-19 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 Investment ISA UK
Deciding on a Cash or Investment 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 interest 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.
An Investment ISA UK 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 an Investment ISA UK
There’s a lot of choice when it comes to opening an Investment ISA UK. 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 Investment 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 🤓
Once you’ve done your research and picked your provider, it’s time to open your Stocks and Shares ISA. To open an Investment 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 ⚡️ The Plum app lets you try it’s investment platform along with other money management features such as Cashback and Money Maximser free for 30 days, so you can try before you buy and decide if it’s right for you.
Investing with a Plum Investment ISA
You can use an app like Plum to open a UK Investment ISA to help simplify the process and build your confidence with investing📱 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 Investment 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 👵
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 Gaudi Regulated Services Limited (Gaudi) to act as the Product Provider. Gaudi 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.
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 the Government Lifetime ISA.
We even have specific advice for Moneybox, Skipton, Barclays, Natwest, Nationwide, Santander, Halifax, Nottingham Building Society, Hargreaves Lansdown, Lloyds, Martin Lewis, AJ Bell, Nottingham, Nutmeg, HSBC, Nude, Money Saving Expert, HL, Skipton, Newcastle Building Society, Nottingham and Vanguard.