What is a stocks and shares ISA?

A stocks and shares ISA (Individual Savings Account) is an investment account that allows you to invest in shares, funds, bonds and other assets in a tax-efficient way. This means you won't have to pay UK Income Tax or Capital Gains Tax on any returns from investments held within the account.

Because your money is invested, it has the potential to grow more than it might in some cash ISAs. However, it's important to remember that the value of your investments can go down as well as up, and you may get back less than you put in.

Stocks and shares ISAs can feel intimidating, but you don't need to be an investment expert to get started. In this article, we'll explain how a stocks and shares ISA works and what you should consider before opening one.

Who is eligible for a stocks and shares ISA?

To open a stocks and shares ISA, you need to:

• Be a UK resident
• Be aged 18 or over
• Have a valid National Insurance number

You can pay into more than one ISA in a single tax year, as long as your total contributions do not exceed the £20,000 ISA allowance. It's also important to be aware that different ISA types may have their own rules, contribution limits and restrictions e.g. Lifetime ISA. 

If you move abroad, you can usually keep your existing ISA open, but you must tell your provider and you won’t be able to make further contributions until you’re a UK resident again.

Can I contribute to an ISA for someone else?

ISAs are personal savings and investment accounts, so you can't pay directly into someone else’s ISA. Any contributions must be made by the account holder.

There is one exception:

• Junior ISAs: While only a parent or legal guardian can open a Junior ISA, anyone can contribute to it, including grandparents, other family members and friends, up to the annual Junior ISA allowance.

So, although you can't contribute directly to another adult's ISA, you can contribute to a child's Junior ISA. If you want to help an adult save or invest, you can gift† them money for them to pay into their own ISA, subject to their available ISA allowance.

† Gifts may be subject to Inheritance Tax.

How does a stocks and shares ISA work?

Each tax year, you can pay up to £20,000 into a stocks and shares ISA to invest. The way you invest will vary based on the type of portfolio you have, these are two of the common portfolio types:

• Managed portfolio: Your ISA provider will invest into a fund or manage your investment on your behalf with no input from yourself needed
• DIY portfolio: You choose where you want to invest yourself

The value of your stocks and shares ISA will change with the market, rising or falling depending on how your investments perform.

One of the biggest advantages is the tax efficiency it offers. Any growth your investments make is free from Capital Gains Tax, and any income earned is free from UK Income Tax.

Your ISA allowance runs from 6 April to 5 April each year. Any unused allowance cannot be carried over into the next tax year, so it's important to make use of your allowance before it resets.

Unlike fixed-term accounts, you're not locked in. You can withdraw your money at any time, which may make a stocks and shares ISA a more accessible option for people who are looking for long-term growth without restricting access to their funds.

That said, this type of ISA is generally more suited towards medium to long-term goals. Keeping your money invested for five years or more gives it the best chance to grow and ride out any short-term market fluctuations.

How much can I pay into a stocks and shares ISA?

Each tax year, you can contribute up to £20,000 across all your ISAs. This is known as your ISA allowance. You can split this across different types of ISAs, including cash ISAs, stocks and shares ISAs or Lifetime ISAs*.

Your used allowance is calculated based on how much you contribute, not the value of your investments. So if your investments fall in value, you cannot pay more to make up for the loss; it’s strictly the contributions that count toward your limit.

*The Lifetime ISA has its own limit of £4,000 per tax year, which counts towards your overall £20,000 ISA allowance.

How much does it cost to invest in a stocks and shares ISA?

Charges vary between providers, so it's worth understanding what you might pay before opening an account.

Account or platform fee: A charge for using the investment platform that holds your ISA. This is usually either a flat annual fee or a percentage of the total value of your investments, although some providers don't charge a platform fee.

Fund management charge: If you invest in funds, you'll usually pay an ongoing annual charge to the fund manager for managing the investments. This is typically included within the fund rather than charged separately.

Trading fees: Some providers charge a fee each time you buy or sell investments. They can be a flat fee or a percentage of the transaction. 

The benefits of a stocks and shares ISA

A stocks and shares ISA can be one potential way to grow your money while keeping things tax-efficient. Here’s why some people choose them:

Tax-free growth

Any money your investments make, whether from dividends, interest, or capital gains, is completely free from Income Tax and Capital Gains Tax. That means more of your money stays yours.

Flexibility

You can usually access your money whenever you need it, making it a more flexible option than some long-term investments, like a fixed-rate bond.

Choice of investments

Stocks and shares ISAs let you invest in a range of assets. You can build your own portfolio or go for a ready-made option.

Long-term growth potential

Over time, investments have the potential to grow more than some cash ISAs. While there are no guarantees and the value of investments can go down as well as up, investing for the long term gives your investments more time to recover from short-term market fluctuations and increases the likelihood of positive returns.

Introduction to investing

If you’re new to investing, you can start small and learn as you go. Some providers offer managed funds or portfolios, removing the need for you to manage your investments yourself.

What are the risks of a stocks and shares ISA

A stocks and shares ISA has the potential to grow your money over the long term, but it's important to understand the risks before you invest.

Your money isn't protected by a fixed interest rate. The value of your investments can go down as well as up, and you may get back less than you put in. This is why a stocks and shares ISA is generally considered more suitable for medium to long-term goals, giving your investments the chance to recover from short-term dips in the market.

Here are some risks to be aware of before opening a stocks and shares ISA:

• Value can go up and down: The investments inside your ISA are linked to the stock market and other financial markets. This means the value of your ISA can rise, but it can also fall, and you might get back less than you put in.
• Market volatility: Short-term changes in the market can affect your investments, which is why stocks and shares ISAs are generally best suited for medium to long-term investing.
• No guaranteed returns: Unlike a cash ISA, your capital isn’t protected. There’s no fixed interest; your returns depend on how your investments perform and you can get back less than you invested.
• Fees: Platform fees, fund management fees, and trading costs can reduce your overall returns. It’s important to understand these before investing.
• Your personal situation: If you might need access to your money quickly or are uncomfortable with fluctuations in value, a stocks and shares ISA may not be the right choice.

If you're unsure whether a stocks and shares ISA is right for you, it's worth speaking to an independent financial adviser before you proceed. You can find one at unbiased.co.uk. Fees may apply.

Different types of ISA

Not all ISAs are the same. Depending on your goals, investment timeline, and comfort with risk, some may suit you better than others. The table below gives a quick overview of the main ISA types, their tax benefits, level of risk, accessibility, and who they may suit.

For a full breakdown of the different types of ISAs on offer and to determine which would be best for you, take a look at our ISA comparison below:

Who is a stocks and shares ISA suitable for?

A stocks and shares ISA could be a good fit if:

• You want to grow your money over the medium to long-term
• You're comfortable leaving your money invested for five years or more
• You don't need immediate access to your funds
• You're happy to accept some level of risk in exchange for the potential for higher returns
• You haven't used your full £20,000 ISA allowance for the current tax year

Unlike a cash ISA, your capital isn’t protected. There’s no fixed interest; your returns depend on how your investments perform.

Can I transfer my existing ISA to Unity Mutual?

Yes, you can transfer an existing ISA to Unity Mutual. Transferring an ISA does not count towards your annual allowance. However, it's worth checking whether your current provider charges a transfer-out fee before you move.

It is important to understand that the value of your investment can fluctuate, and your capital may be at risk. Please read the Terms and Conditions carefully to make sure the product is right for you.

Here are the steps to take to transfer your ISA to Unity Mutual.

Step 1: Do your research and check that the product is right for you
Step 2: Request or download the Flexible ISA transfer-in form
Step 3: Return the completed form to us by email at insure@unitymutual.co.uk or by post to Freepost UNITY MUTUAL (please write UNITY MUTUAL in capital letters)
Step 4: Our team will take care of the rest; we will let you know once your transfer is complete

How do I open a stocks and shares ISA?

Opening a stocks and shares ISA with Unity Mutual takes just a few minutes. Before you begin, please read the product's terms and conditions. Once you're ready, make sure you have the following information to hand:

• Your National Insurance number - you can find this on a pay slip, P45, P60, or a letter from HMRC
• Your bank card details, if you'd like to make a one-off payment
• Your Direct Debit details, if you'd like to set up regular contributions

To open our Stocks and Shares Flexible ISA, you must be:

• Aged 18 years or over
• A UK Resident or a Crown employee (or their spouse or civil partner) working overseas

You may want to consider speaking to a independent financial adviser for personalised guidance. You can find a local advisor at unbiased.co.uk. Financial advice may come with a fee, so be sure to ask about costs before receiving advice.

Ready to get started? Apply for a Stocks and Shares ISA with Unity Mutual.

Terms and conditions apply. Capital at risk.