What’s a Flexible 'Stocks and Shares' ISA?
You may have heard about 'Stocks and Shares', but what about a Stocks and Shares ISA. How do they work?
What is an ISA?
An ‘ISA’ or Individual Savings Account, is a tax-free way of saving or investing. However, HMRC does set contribution limits for how much people can save into their ISA(s) each year.
This is called your ISA allowance, and means your ISA savings are free from income tax and capital gains tax.
Types of ISA:
Cash ISAs - A tax-free savings account where you earn interest on your money.
Lifetime ISAs - For first-time homebuyers or retirement savings, you can save up to £4,000 each year. The government will then add a 25% bonus to help boost your savings.
Junior ISAs - Tax-free savings or investment accounts for children under 18. You can contribute up to £9,000 each year.
Stocks and Shares ISAs - Invest your money in stocks, bonds, or funds as opposed to a cash ISA that will have a fixed rate of interest. Any money you make from your investment is tax-free.
Flexible ISAs (FISA) - With a flexible ISA, you can replace the amount you withdraw within the same tax year.
In this blog, we explore the benefits of a Flexible 'Stocks and Shares' ISA. We discuss what you should know before opening one.
What are the benefits of a Flexible ISA?
A flexible ISA gives you more freedom with your savings. With a Flexible ISA (FISA), you don't lose your ISA allowance if you access your savings within the tax year.
Example:
If you put £1,000 into a regular ISA and then take out £900, your ISA balance will be £100.
However, you have still used £1,000 of your £20,000 annual ISA allowance. This leaves you with £19,000 to save until the limit resets at the start of the tax year.
With a Flexible ISA, you'd still have the option to save the full £19,900 back into your ISA in the same tax year.
Why should Flexible ISA savers consider Stocks and Shares?
Unlike Flexible Cash ISAs that pay regular interest, a Stocks and Shares ISA invests in the stock market. A Stocks and Shares ISA aims to give you better growth on your savings over the long term.
> See more about Unity Mutual’s Flexible ISA performance.
The emphasis here is on the long term, as the stock market can of course go down as well as up. This is why you’ll see the message ‘Capital at Risk’. If the stock market drops, your investment might shrink in value.
Investing in the longer term will hopefully allow your investments time to recover, should they see a drop in value.
Are Stocks and Shares ISAs high risk?
With a Unity Mutual Flexible ISA, your savings are invested in our Equity Fund. This fund invests in over 600 UK companies. It tracks the average performance of the stock market. This fund helps spread the risk by investing in a large number of companies.
When you choose a Stocks and Shares ISA, performance cannot be guaranteed and there is always a risk to your investment.
How do I understand Stocks and Shares ISA performance?
ISA providers like Unity Mutual will provide performance charts and historical data for their unit-linked savings products. This helps you see how their funds have performed over time.
However please note past performance should not be considered a guide for future performance.
Here's what you should know:
Unit-Linked Funds:
- With a Unity Mutual Flexible 'Stocks and Shares' ISA your money is used to ‘buy units’ in a fund.
- The performance depends on the value of the units in the fund. It relies on how the 'assets', like stocks and bonds, are doing.
Scenario: Weekly Pricing in a Stocks and Shares ISA
Let’s say you invested £250 in a unit-linked fund in November, when the price of each unit was £1.816.
We first need to calculate how many units you bought:
- £250 (your investment) ÷ £1.816 (current price of unit) = 137.91 units (rounded to 2 decimal places)
Now, let’s fast forward to the following week in December, when the unit price increases to £1.833.
To see how your investment has grown, Unity Mutual would multiple the number of units you own by the new unit price:
- 137.91 units × £1.833 = £252.52
So, after the unit price increased to £1.833, your £250 investment is now worth £252.52.
This means you’ve made a £2.52 gain on your investment over the week.
This scenario illustrates how your investment can grow or shrink depending on the weekly changes of the unit price as it is important to remember your investment can fall as well as rise.
Can I have more than one ISA?
Yes. You can have more than one ISA. While contribution limits can change each year, you can currently invest up to £20,000 into ISAs for 2024-2025.
Perhaps you want to balance the risk of a Stocks and Shares ISA with a Cash ISA. Or if you're saving in a Lifetime ISA for your first home, and you want to maximise your ISA allowance.
And whilst HMRC sets contributions limits, you are able to split your ISA allowance across other ISA products.
ISA Allowance Example
With a £20,000 ISA allowance, you could save:
- £10,000 in a Stocks and Shares ISA
- £4,000 in a Lifetime ISA
- and £6,000 in a Cash ISA
Great news for anyone thinking about opening a stocks and shares ISA and maximising their tax benefits. You won’t pay any income tax on dividends or interest earned.
You also won’t need to pay any capital gains tax if you make a gain when you sell your investments.
How do I learn more about Unity Mutual’s Flexible 'Stocks and Shares' ISA?
If you’re keen to start investing and want to learn more about the Flexible ISA, visit Flexible ISA to answer more of your questions.
You can also talk to one of our friendly team. While we can't tell you if our Flexible ISA is right for you, we can provide factual information. We are happy to explain the product to you.
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