An Introduction to Stocks & Shares ISAs – part 1

11 May 2017

An Individual Savings Account, commonly referred to as ISA, form a beneficial vehicle for long-term savings, sheltered from taxation.  They enable individuals to save or invest money without paying income or capital gains tax on investment returns accrued.  For each tax year, there’s a limit to the amount that can be invested through an ISA, termed the annual allowance. For the 2017/18 tax year, the allowance is £20,000.

It should be remembered though that tax rules are liable to alteration, and personal circumstances can affect how beneficial they are.

Stocks and Shares ISAs

Stocks and Shares ISAs were introduced in 1999 and provide retail investors resident in the United Kingdom with one of the most tax efficient investment wrappers available: returns generated are free from Capital Gains Tax, while dividends received within an ISA will remain tax free and won’t impact your dividend allowance.

Whilst Cash ISAs are the most popular, interest rates are poor currently, and have been for a while.  Stocks and Shares ISAs are not limited by these rates in the same way, and as long as you are happy with the level of risk they can offer an effective and efficient vehicle for saving.

Within a Stocks and Shares ISA it is possible to hold a variety of investments, including funds, shares and corporate bonds, amongst others, protecting any returns from tax.  They are generally regarded as being most effective for longer term investing, as they can produce significantly higher returns.  It should be remembered however that there is an element of risk involved with Stocks and Shares ISAs, which can go down as well as up, so it’s possible to lose money.

Junior Stocks and Shares ISAs (JISAs)

Junior Stocks and Shares ISAs allow parents or guardians with parental responsibility to invest in a tax efficient investment wrapper on behalf of a child. The parent or guardian responsible maintains control of the Junior ISA until the child turns 18 years of age, but as soon as a subscription has been made the money becomes the child’s.  JISAs were introduced on 1 November 2011 and replaced the old Child Trust Fund Schemes.  The Junior ISA allowance for current tax year which runs from the 06th April is £4,128.

Who can open an ISA?

The individual must be:

  • 16 years or above for a cash ISA
  • 18 years or above for a Stocks and Shares ISA
  • Resident in the UK
  • A Crown servant (E.g. Diplomatic or overseas civil service) or their spouse or civil partner if not residing in the UK

Next week we’ll be looking at how Cash ISAs and Stocks & Shares ISAs compare, as well as the recent ISA updates Chancellor Phillip Hammond announced in his Spring Budget.