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Stocks and shares ISAs: everything you need to know

ISAs shelter investments from tax

The joy of a stocks and shares ISA is that it legally protects your investments from tax on growth and income. That’s more important than ever as tax-free allowances are being slashed or suppressed across the board.

If you hope to build wealth through investing then shielding your gains from unnecessary tax must be a core part of your strategy.

ISAs are tax-efficient ‘wrappers’ created by the UK government to encourage saving. Any investment inside the ISA wrapper can grow tax-free as long as you don’t break the rules.

Stocks and shares ISAs are provided by high street banks, fund managers such as Vanguard, financial advisors, and specialist online brokers or platforms.

You get a new ISA allowance every tax year. You can put the entire amount into a stocks and shares ISA if you wish.

£20,000 is the maximum amount of new money you can pay into a stocks and shares ISA during the tax year 2022-23. (£9,000 in a JISA1). The same limit will apply from the new tax year: 2023-2024. The tax year runs from 6 April to 5 April.

The ISA deadline is 5 April every year. That’s the last day of the current tax year you can use up your allowance. You get a new allowance from 6 April. But you can’t roll over unused ISA capacity from the previous year.

If you’ve left things late then know it’s enough to have the cash taken off your debit card and inside your ISA by close of business on 5 April. You don’t need to have actually invested the cash for it to qualify for tax-free protection.

Why open a stocks and shares ISA?

A stocks and shares ISA combines three critical features:

  • Legally recognised tax protection. You don’t have to worry about HMRC handing you a large bill because you invested in some sketchy offshore caper.
  • Instant accessibility. You can invest in liquid holdings that can be sold to meet unforeseen difficulties or other life events that occur before you reach pension age.

In short, ISAs are a private investor’s top tax-protection shield, along with pensions.

Which taxes are not paid in a stocks and shares ISA?

The main taxes that you do not have to pay on investments in a stocks and shares ISA are:

  • Income tax on interest – as earned on bonds and bond funds.
  • Dividend income tax – as paid by shares, equity funds, and property funds.
  • Capital gains tax on profits – as paid on the growth in value of taxable assets when you sell them.
  • Inheritance tax – although it’s complicated, and depends on the ISA passing to a spouse or civil partner who’s not been estranged from the deceased.
  • Interest and dividends paid straight out of your ISA are not taxed.
  • ISA withdrawals aren’t taxed, unlike with a pension. (You will pay a penalty if you withdraw from a Lifetime ISA at the wrong time).

Even more reasons to use an ISA

Investing in a stocks and shares ISA is a no-brainer, even if you think your holdings are too small to be caught up in the taxman’s net.

  • Many providers charge you no more for holding an ISA than they do for keeping your assets in a taxable account.
  • Though most of us start out small, your investments can grow surprisingly rapidly. Over the years you will outstrip your ability to manage everything within your tax allowances.
  • Taxes can go up. On top of explicit increases in dividends and capital gains, other UK tax thresholds are being frozen until April 2028. This is a stealth tax, so use your tax shelters while you can.
  • You don’t even have to tell HMRC about your ISA transactions. (Believe me, if you ever have to fill in a tedious capital gains tax form, you’ll fall to your knees with thanks that all your investments are in an ISA.)

ISAs can be mission critical

If you’re on a mission to achieve financial independence (FI) before your minimum pension age2 then stocks and shares ISAs will accelerate you towards your goal.

The best course for most will be to combine ISAs and SIPPs to achieve the FI dream. ISA investments can bridge the gap between your FIRE3 date and your minimum pension age.

The minimum pension age for accessing your personal pension is currently 55. But the government has confirmed it will rise to age 57 at some point in 2028. Thereafter the minimum pension age is due to be set to ten years before your State Pension age.

A stocks and shares ISA is also a great place to stash your pension’s 25% tax-free lump sum so that you can expand the amount of income you can take without being pushed into a higher tax bracket.

Investment ISA types

You can hold investments in the following types of ISA:

  • Stocks and shares ISA
  • Lifetime ISA (choose a stocks and shares version not cash)
  • Junior ISA (again, shares not cash)

ISA providers call stocks and shares ISAs by various names including:

  • Shares ISA
  • Self-Select ISA
  • Ready Made ISA
  • Share Dealing ISA
  • Investment ISA
  • Workplace ISA

They’re all stocks and shares ISAs. But they are given different marketing labels depending on how the provider is trying to appeal to consumers.

A stocks and shares ISA may also be a flexible ISA. This means you can potentially replenish withdrawals you make without running down your ISA allowance.

You can invest in a stocks and shares ISA from age 18 onwards by opening an account with your chosen platform (bank, fund manager, IFA or similar).

We’ve put together a list of providers in our cheapest online broker table. These providers enable you to invest in a DIY stocks and shares ISA. You can see who offers a flexible stocks and shares ISA in the left-hand column.

Stocks and shares ISA rules

You can:

  • Have as many stocks and shares ISAs as you like, so long as you don’t put new money into more than one per tax year.
  • Split money across a stocks and shares ISA, lifetime ISA, cash ISA, and innovative finance ISA, provided you don’t put in more than £20,000 between them,4 nor open more than one of each type, in the same tax year.
  • Transfer money from previous years’ ISAs (of any type) into multiple stocks and shares ISAs with any provider. And vice versa.

Transferring old ISA money or assets does not:

  • Use up your ISA allowance for the current tax year
  • Break the one-type-of-ISA-a-tax-year rule

You can transfer any amount of your previous years’ ISA’s value. Either transfer the whole lot into one ISA, transfer a portion of it into several ISAs, or do any other combo you desire.

How to transfer an ISA

You must transfer the whole balance if you’re transferring your current tax year’s stocks and shares ISA

You can transfer it into a different type of ISA – provided you haven’t already opened one of that type this tax year.

In that scenario, you can also open a new stocks and shares ISA later that tax year.

This is an exception to the one-type-of-ISA-a-tax-year rule.

It works because transferring from one type of ISA to another means that you now count as subscribing to the receiving ISA type.

For example, you transfer from a stocks and shares ISA to a cash ISA. You can now open a new stocks and shares ISA without falling foul of the ‘one type of ISA per tax year’ rule.

Always transfer an ISA to retain the tax-free status of its assets. Don’t withdraw cash and plop it in a new ISA – that uses up your ISA allowance!

Transfer assets in specie (this avoids them being sold to cash) if you are given the option. In specie moves are also known as re-registration.

Other ISA funding rules

You can’t invest new money in a workplace ISA and a stocks and shares ISA.

If you invest £9,000 per tax year in a JISA for each of your children that does not reduce your own ISA allowance.

Most stocks and shares ISAs have minimum required contributions. They are often as low as £50.

Replacing cash withdrawn from a flexible stocks and shares ISA does not use up your ISA allowance. However you can’t replace the value of shares, or other investment types, that you moved out of the account.

It’s worth checking your ISA’s T&Cs whenever you choose a product. Not all of the government’s ISA rules are mandatory. ISA managers do not have to support all features.

Best ISA funds

The main investment vehicles you can include in a stocks and shares ISA are:

The government maintains a comprehensive list of the complete menagerie.

If you are new to investing then our passive investing HQ can explain more.

Remember that the assets listed above are riskier than cash – you can get back less than you put in.

It’s worth regularly reflecting on how much risk you might be able to handle as you build your investing portfolio.

Index trackers are an investment vehicle that combine simplicity and affordability. They are recommended by some of the best investors in the world – and us.

The Financial Services Compensation Scheme (FSCS) provides some investor compensation should your ISA or investment manager go belly up. Do take a look at the link. The scheme is convoluted, to say the least.

Stocks and shares ISA costs

You can expect to pay stocks and shares ISA investment fees that cover:

  • Your ISA provider’s management costs
  • The cost of owning investment funds
  • Dealing fees for trading investments in the open market
  • Fees for special events such as transferring your ISA

All fees should be transparently laid out by your ISA provider and investment fund managers.

Charges that can be paid from monies held outside of your ISA, if your provider agrees, include:

  • ISA provider’s management costs
  • Fees for special / one-off events, such as closing your account

Charges that must be paid from funds held within the ISA include:

  • Dealing fees
  • The cost of owning investment funds

A flexible ISA doesn’t enable you to replace the cost of ISA charges against your allowance.

Beware of transfer fees that can rack up when your provider charges you ‘per line of stock’. For example they might charge you £15 per company stock and investment fund that you own.

Tax efficiency

You can’t transfer most unsheltered assets straight out of a taxable account and into your stocks and shares ISA wrapper.

You generally have to sell the assets first and buy them again inside your ISA. This is colloquially, if not popularly, known as Bed and ISA.

Selling an unsheltered investment can cost you capital gains tax on your profits. But you can duck that by staying within your capital gains tax allowance and defusing your capital gains.

You can transfer employee share save scheme shares directly into an ISA in some circumstances.

If you want to invest more than you can squeeze into your annual ISA allowance, then research tax efficient investing to avoid building up a capital gains tax time bomb.

Inheriting a stocks and shares ISA

Your surviving spouse or civil partner can receive your ISA assets tax-free upon your death. Although do check that the T&Cs of your particular stocks and shares ISA allow for it to remain tax-free and invested after your passing.

++Monevator Minefield Warning ++ The rules below apply equally to spouses and civil partners but we’ll just refer to spouses for brevity’s sake. Unmarried couples do not benefit from these special inheritance rules. See our article on how unmarried couples can protect their finances.

A surviving spouse is given a one-off ISA allowance that equals the value of your ISAs. 

This is called the Additional Permitted Subscription (APS).

A spouse uses the APS to add the value of their deceased partners’ ISAs into ISA accounts held under their own name. 

For example, if you die with ISA assets worth £50,000, then your spouse is entitled to an APS of £50,000.

Plus they get their usual annual ISA allowance on top.

The APS effectively means your spouse benefits from the tax-free status of your ISA assets after your death.

The APS is worth the higher of:

  • Your ISA’s value at the date of your death
  • Or the value of your assets when the account is closed. (This assumes no part of the APS has been used up to that point)

Surprisingly, your spouse still benefits from the APS even if your ISAs are willed to someone else. 

In this scenario, your partner can fund their APS from their own money or other inherited assets.

That said, under most circumstances, a surviving spouse will fill their APS simply by transferring their deceased partner’s ISA assets. 

The APS must be used no later than:

  • Within three years of the date of your death 


  • Within 180 days of the completion of the administration of your estate, if that’s later

The surviving spouse does not have to wait until the estate is settled to use the APS though. 

Managing an inherited ISA

Assets within the deceased’s ISA can be managed by their personal representatives before it is closed. However they can’t make new contributions into the account. 

The ISA continues to grow tax-free until the earlier of:

  • Completion of the administration of the estate.
  • Closure by your executor
  • Three years and one day after your death. The account is automatically closed at this point

If you have multiple ISAs with different providers then your spouse’s APS is divided between them according to the value of the ISAs lodged with each firm. 

Your spouse must claim each portion of their APS from each ISA provider involved.

Again, check that the various providers of your ISAs subscribe to these rules as described. Terms can vary.  

More ISA inheritance rules

(Because there isn’t enough to think about already…)

The other main wrinkle is that your spouse can only receive assets in specie from a stocks and shares ISA by transferring them to the same provider that you held them with.

They can then transfer the assets to another manager once held in their own name.

Another clause is that assets transferred in specie must be the ones held on the date you were told of the death of the investor. (Some might see this rule as pretty heartless. However I don’t know about you but the very first thing I want to know after hearing the news of my partner’s death is the list of non-cash assets they’ve got tucked in their ISAs. Let’s cut to the chase!5)

In specie transfer must be made within 180 days of the assets passing into the beneficial ownership of the surviving spouse.

Your ISAs do not pass on their tax-free status to anyone other than your spouse. 

The tax benefits do not apply if you and your surviving partner were not living together on the date of death, or were legally separated, or in the process of becoming legally separated. 

AIM-ing for even more

Some wealth managers and platforms market AIM ISAs that twin the advantages of a stocks and shares ISA’s tax efficiency with the inheritance tax-elusiveness of Alternative Investment Market (AIM) shares.

Some but not all AIM shares qualify for inheritance tax relief under peculiar government rules that are subject to change.

An AIM ISA is:

  • Risky
  • Not guaranteed to work out
  • Subject to high minimum investments, which add a naughty elite frisson to the escapade

Check out the links above if you need ‘em.

Stocks and shares ISAs aren’t just for the rich

Some people think ISAs are a rich person’s concern. That’s because few have experience of paying capital gains tax, or even income tax on share dividends.

However even modest savings can really add up to a big portfolio in a bull market, at which point the tax protection is invaluable.

Shielding your investment returns from tax like this can make a huge difference to your end result from investing.

Finally, if you want to optimise your ISA to the max then take a look at our cheapest stocks and shares ISA hack. 

Take it steady,

The Accumulator

  1. Junior ISA for kids. []
  2. The moment you can first crack open your personal pension. []
  3. Financial Independence Retire Early. []
  4. Or more than £4,000 in the case of the lifetime ISA. []
  5. Sarcasm. []
{ 19 comments… add one }
  • 1 DavidD November 10, 2008, 9:42 pm

    I’m glad you have started posting again, your posts are both interseting and insightful.


  • 2 The Investor November 11, 2008, 5:21 pm

    @David — Thanks very much for noticing, and for the kind words! I’ve got to admit that it’s a lot more work keeping up a blog than I expected, and the past few months has had plenty to keep us all busy! But I do hope to post a bit more frequently from now on.

  • 3 DavidD November 11, 2008, 9:01 pm

    I know what its like!

    I’m glad to hear that. I bet you are loving the look of some of the high yield shares at the moment, as I am too.

    Here is a random question…have you ever heard of Money Week magazine? Its a great read, sad as it is, its one of the things I’m missing about the UK at the moment.

  • 4 The Investor November 12, 2008, 4:57 pm

    @David – Ah Moneyweek, the home of the fragrant Merryn Somerset Webb. She might have been just as wrong as me about a recovery in Japan, but I have to admit her uber-bearishness on just about everything else has been right on the money so far (though I think she was a bit over-bullish on commodities if I remember correctly). And she’s a fellow traveler when it comes to house prices, which have only partly corrected against the long-term price-to-earnings ratios…

    Anyway, predicting this stuff is mighty hard. At least it makes a nice change to see a woman doing it.

  • 5 DavidD November 13, 2008, 6:40 pm

    haha your talents are wasted in whatever job you do, unless of course you are a writer! You have a great style.

    I think you are right about her predictions on Japan, and commodities. It’s hard though, everything has gone down, even the investments which historically have been negatively correlated.

    Japan does look cheap, especially the smaller companies. I think I might seriously transfer all my pension to a nice Japanese Index Fund or 2.

    What are you doing with your money at the moment, if you don’t mind me asking?

    I am coming up with a nice shortlist of dividends shares. I feel like a kid in a candy store!

  • 6 stock picking July 16, 2010, 8:14 am

    This is article is especially true given the recent changes in Capital Gains Tax. Need to shield as much of your wealth as you can these days.
    .-= stock picking on: Stock Picking =-.

  • 7 Sundar September 8, 2020, 2:25 pm

    With respect to ISA transfer, is it possible to transfer just a part of your existing ISA account to a newly opened ISA as a “past-year contribution” transfer ?

  • 8 Amit September 8, 2020, 7:13 pm

    “ assets transferred in specie must be the ones held on the date you were told of the death of the investor”

    Is it heartless or instead a moot point to prevent a partner from subsequently topping up the deceased’s ISA and then seek a transfer ie double dip into that years allowance. This may also happen inadvertently if regular contributions and investments from the deceased’s account haven’t been put to stop in a timely manner.

  • 9 miner_49er September 8, 2020, 8:05 pm

    Any idea on the duration it takes to do a transfer from Vanguard to iWeb? and whether they do in specie?

  • 10 The Accumulator September 9, 2020, 8:06 am

    @ Sundar – the answer to that is yes.

  • 11 William September 9, 2020, 3:44 pm

    May I enquire why you wish to transfer from Vanguard to iWeb? I believe Vanguard only transfer in/transfer out as cash.

  • 12 DBF September 9, 2020, 4:25 pm

    It’s always refreshing to be reminded that when tax ‘shielding’ schemes are designed by the 12-year-old-looking bods in HM Treasury they are fine, but when accountants and individuals find their own ways of mitigating their tax bills (legitimately and legally) it’s labelled ‘avoidance’.

    Which HMRC now expects you to fess up to in your tax return – so they can either come after you, or give their policy wonks another loophole to close to keep them out of trouble!…

  • 13 W September 10, 2020, 6:47 am
  • 14 Berserker September 13, 2020, 10:19 am

    about to step in this area.
    one benefit i think there is for me is the fact that my work pension with Aegon will combine cost of all assets including stocks and shares isa when they work out how much to charge me.
    Also still guessing what the hell i invest in at this time 🙂

  • 15 Sian February 4, 2021, 4:32 pm

    Thanks for the info, completely new to investing so please forgive my questions if they seem simple. I’m looking to long-term invest with a stocks and Shares ISA and this is the first time I’m opening an account.

    If I open a S&S ISA before April 6th will I then need to reopen another one after this date if I wanted to continue saving in this way or can I keep adding to the original one? If I have to open a new ISA in the new tax year, can you ever add to the old one with ‘new money’ or is that done for that tax year?

  • 16 The Accumulator February 4, 2021, 7:08 pm

    Hi Sian, you can keep investing in the same ISA every tax year. The dawn of the new tax year gives you a fresh £20,000 that can be funnelled straight into your ‘old’ ISA.

  • 17 Nigel March 10, 2023, 9:51 pm

    Funnily enough my wife asked me today what would happen to my ISA’s if I died before she does. I knew she could inherit the ISA allowance (APS) but I was unsure about an in specie transfer, which is what she would prefer. The key thing I picked up from this fine article is that she needs an account with the same provider. So, I need to set her up and ISA with iWeb to make the whole thing as simple as possible, if I do decide to pop my clogs any time soon.

    I also have now told her she needs to carry on living with me!

  • 18 faithlessworld March 11, 2023, 11:38 pm

    I’m late 30s with monthly contributions to a S&S ISA, and wondering should I open a Lifetime ISA too whilst I still can, to take advantage of the tax breaks. But if I’m going to tie up cash that long I’m probably better off putting it in AVCs to my pension and pocketing the NICs break too? I’ve got a decent public sector defined benefit pension which I don’t think will trouble the lifetime allowance, but the LTA could obviously be cut/unchanged but cut by inflation…

  • 19 Barney November 16, 2023, 10:04 am

    Is there a need to keep old ISA paperwork, as in initial start paperwork and old statements etc. I have these going back some time and with all the switching of funds (Before I saw the passive light)I couldn’t keep track of them anyway. I’m assuming that HMRC will have a record, or would it be up to me to prove if necessary that I took out an Isa in 2000 say.

    BTW smarter investing 4th edition here: http://www.ebay.co.uk

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