01 Apr 2024

What is a stocks and shares Isa?

Stocks and shares Isas offer the possibility of higher returns than cash Isas, but you need to be prepared to take a risk with your savings

Megan ThomasResearcher & writer

In this article

What is a stocks and shares Isa?
What is the stocks and shares Isa allowance in 2023-24?
Which stocks and shares Isa should I pick?
How much does a stocks and shares Isa cost?
What are the tax advantages of stocks and shares Isas?
Are stocks and shares Isas safe?

What is a stocks and shares Isa?

While a cash Isa is a tax-free savings account, a stocks and shares Isa is a tax-free investment account that lets you put money into range of different investments.

These include individual shares, investment funds, investment trusts and bonds.

You should only invest in a stocks and shares Isa if you're happy to take the risk that your investments can go down as well as up in value.

Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.

Find out more: How to invest: a beginner's guide

What is the stocks and shares Isa allowance in 2023-24?

During the 2024-25 tax year – which runs from 6 April 2024 to 5 April 2025 – you can place up to £20,000 into an Isa. This is the same Isa allowance as the 2023-24 tax year.

It is possible to split your Isa allowance between several different types of Isa 'wrapper':

If you have existing Isas, they do not contribute towards this year's Isa allowance.

You can transfer existing cash Isas and stocks and shares Isas into a new stocks and shares Isa without affecting your allowance.

As of April 2024, you can open and pay into several Isas of each type per year, so you could open two cash Isas, contribute to two stocks and shares Isa, etc - but you still can't exceed the £20,000 allowance across these.

Find out more: Stocks and shares Isa transfers

Which stocks and shares Isa should I pick?

Stocks and shares Isas are offered by several banks, but also by dozens of investment platforms.

When selecting a stocks and shares Isa, consider the choice of investments available through the provider, its customer service and the fees you'll have to pay.

Each year, Which? surveys thousands of customers of investment platforms. We ask about value for money, customer service and how easy the platforms are to use, among other things.

We also analyse provider fees for different sizes of portfolio. We then pick Which? Recommended Providers based on a combination of customer scores and fees.

Find out more: Best stocks and shares Isas 2024

How much does a stocks and shares Isa cost?

Unlike a cash Isa, you'll usually pay a fee to hold a stocks and shares Isa.

We looked at average annual fees for stocks and shares Isas from leading providers:

What you hold	£25,000 portfolio	£250,000 portfolio
Investment funds	£90	£638
Stocks, exchange-traded funds or investment trusts	£112	£330

Stocks and shares Isas don't usually cost any more than general investment accounts.

You'll pay two sets of charges: those set by the investment platforms or financial adviser and, if you're buying funds, those levied by individual fund managers.

Fees matter, because they apply whether or not your investments perform well – as our graph demonstrates:

Not all investment platforms levy a percentage charge: some levy flat fees, fees for trading or a combination of all of these.

Some platforms also charge for transferring your stocks and shares Isa to a different provider.

We've compared the fees of leading investment platforms across eight different portfolio sizes, so you can find the cheapest platform for you.

Find out more: Compare investment platform fees and charges

What are the tax advantages of stocks and shares Isas?

The tax advantages of stocks and shares Isas can be significant, especially if you're a higher or additional-rate taxpayer.

Keeping investments in a stocks and shares Isa means you don't have to pay the following taxes:

If you buy shares, or collective investments such as unit trusts that invest in a portfolio of shares for you, you're likely to receive dividends.

In the 2023-24 tax year, the dividend allowance will be £1,000, which means you can earn £1,000 before paying tax.

This is half the 2022-23 allowance and in 2024-25 it will halve again to £500.

Tax rates will remain the same - 8.75% for basic rate taxpayers (as judged by your total income that tax year), 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

Any investments kept in a stocks and shares Isa will avoid tax on dividends altogether.

Use our dividend tax calculator to find out how much you'll pay in 2023-24.

Everyone in the UK has an annual capital gains tax-free allowance.

The capital gains allowance for the 2023-24 tax year is £6,000. It will fall to £3,000 in 2024-25.

Above this you'll pay 10% on asset gains as a basic-rate taxpayer, and 20% as a higher or additional-rate taxpayer.

Assets in stocks and shares Isas aren't subject to CGT.

Stocks and shares Isas will only offer a capital gains tax benefit if you realise gains in excess of this allowance in a single tax year.

And keep in mind that capital gains are only payable when you sell your shares for a profit, not if they simply increase in value.

But as your CGT allowance may be needed for other reasons (such as selling an investment property), keeping assets in stocks and shares Isas makes sense.

Find out more: tax on savings and investments

You may have to pay income tax on the interest paid by some types of investments, such as bonds and some types of funds.

As with savings interest, basic-rate taxpayers can earn up to £1,000 tax-free per tax year via the personal savings allowance. Higher-rate taxpayers can earn £500 tax-free; additional-rate taxpayers don't get an allowance.

Keeping investments in an Isa means you don't have to pay any income tax on the proceeds.

It also means that your income from dividends, interest and capital gains won't count towards your overall income tax band.

Stocks and shares Isas don't shield your investments from Inheritance tax or stamp duty when buying shares.

If you move existing investments into an Isa, this could trigger a capital gains tax charge.

This is because the Isa provider has to briefly sell your investments before repurchasing them within the Isa.

Whether you'll have to pay capital gains tax depends on whether your investments have increased in value since you bought them, and if you've used up your capital gains allowance.

Are stocks and shares Isas safe?

All investing involves the risk of losing your money – any 'guaranteed' or 'risk-free' investment could be a scam.

If you don't want to take any risks, a cash Isa, lifetime Isa or savings account may be more suitable.

Within investments, there's a wide variety of assets and some carry more risk (and potential for reward) than others.

Find out more: What is investment risk?

Key Information

FSCS protection

Check that your stocks and shares Isa provider is covered by the Financial Services Compensation Scheme (FSCS).

This means that, should your stocks and shares provider collapse, up to £85,000 of your investments will be protected.

It's likely that your investments will be kept separately (ring-fenced) from the Isa provider's assets, protecting sums above £85,000, although you should check this.

Bear in mind that this £85,000 protection doesn't cover losses from your actual investments. It's the company holding your investments that's covered.