What is a Stocks and Shares ISA?

Alongside your pension, ISAs are likely to be a core part of your long-term financial plan. There are various types, but stocks and shares ISAs are among the most popular. Held by over 4m people,¹ stocks and shares ISAs are a useful way to shelter the income and capital growth in your investments from tax. This is what you need to know about how they work, and how to choose the right one for you.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

ISAs were introduced in 1999 and have become the backbone of UK savings.² They provide a tax-efficient wrapper for your savings and investments. There are two main types – cash ISAs and stocks and shares ISAs. A cash ISA operates like a savings account, while a stocks and shares ISA can hold a range of investments, including shares, investments, bonds, and exchange-traded funds.

Why are ISAs tax efficient?

The tax advantages for ISAs are significant. While only the Lifetime ISA provides tax relief on contributions, once you have invested in an ISA, any ISA Hub you generate on the investments held within it is tax free. No matter how much your investments grow, you will not need to pay capital gains tax, nor do you need to declare those gains on your tax return. It also means any dividends or interest payments are tax free – you can let these roll up within the ISA, or withdraw them.

How does a stocks and shares ISA work?

Stocks and shares ISAs provide a wrapper for investments. The most common approach is to invest through an investment platform or stockbroker, such as Hargreaves Lansdown, AJ Bell, or Fidelity. However, you can also invest through a financial adviser, or there are also a range of ready-made ISA options from online providers.

Once you have opened the account, you need to decide which investments you put in it. Platforms will often offer guidance tools to help you decide, or your adviser or stockbroker may be able to guide you to the right options to meet your financial goals. The decision will be based on what you want your investments to do for you – for example, do you want long-term capital growth? To generate an income? Or a balance of both?

How much can I invest in a stocks and shares ISA?

You can invest in both a cash ISA and a stocks and shares ISA, up to a maximum of £20,000 per year. From April 2027, the limits on cash ISAs are changing, and you will only be able to pay in £12,000 each year.³ You will still be able to invest the remainder of £8,000 in a stocks and shares ISA. The limits on stocks and shares ISAs remain at £20,000.

Subject to those limits, you can choose how much or how little you put into your ISA every year. Many platforms have a minimum investment of £25 per month or £1,000 as a lump sum. Saving regularly has some advantages. By buying at a variety of price points, it can help manage some of the volatility associated with stock markets. Investors manage the risk of buying in at the top of the market, when stock prices are elevated.

It is also worth investing in your stock and shares ISA as early in the tax year as possible. This means you get the benefit of any income and growth in your investments early. Research suggests that ‘early birds’ generate a stronger return on their investments over time.⁴

Are there fees with a stocks and shares ISA?

The fees to hold an ISA will vary according to individual platforms. Many ISA providers don’t charge a fee for the ISA wrapper itself, but will charge for the underlying investments. That might be an annual percentage fee for a fund, or a one-off trading fee for an investment trust or ETF. This is on top of any fees charged by the investment manager for managing the fund.

It is worth looking at these costs in depth because they can be a drag on your investment returns over time. The right option may also depend on your circumstances. Those who are holding large sums in their ISAs may be better with a fixed fee option, while those with smaller amounts may pay less under a percentage fee arrangement.

Can I withdraw money from my stocks and shares isa?

Stocks and shares ISAs are fully flexible. You can take money out at any time. However, you may lose that portion of your annual allowance. Some ISAs allow you to take money out and put it back in within the same tax year without losing your allowance, but you need to check whether the provider you choose gives you this flexibility.

Can you have more than one stocks and shares ISA?

You can have more than one stocks and shares ISA, and you can also hold a cash ISA alongside a stocks and shares ISA, as long as you stick to the annual limit. You can hold a Lifetime ISA (LISA) and a stocks and shares ISA, subject to the £20,000 overall annual limit for ISAs and the £4,000 limit on LISAs.⁵

You can also hold your ISA across a range of providers. The exception to this flexibility is the Lifetime ISA, where you can only open one in each tax year. That said, it can also be better from an administration point of view to consolidate ISAs into a smaller number of providers, enabling you to keep track of your investments and the fees you’re paying.

Can I move ISAs from one provider to another?

If you want to transfer a cash ISA to a stocks and shares ISA, or from one stocks and shares ISA to another, you could simply withdraw the money from the original ISA and put it into the other ISA. However, by doing so, you would lose that part of your ISA allowance and may incur charges. The better option is to use an ISA transfer. This is a specific process designed to enable you to move ISAs from one provider to another, or switch between different ISA products with the same organisation. The process usually takes between one and four weeks, depending on the organisations. To move your ISA savings, you simply need to contact the ISA provider you want to move to and confirm what you’d like to do. You can transfer some or all of your ISAs with each transfer.

Can I generate an income with my stocks and shares ISA?

If you want to generate an income from your stocks and shares ISA, you will need to choose the right underlying investments. In general, there are two sources of income from investments. The first is dividends: companies listed on a stock market may pay a portion of their profits to shareholders each year as a dividend. This is usually listed as a percentage of the share price. There are collective funds and investment trusts that specifically target these companies with the aim of providing reliable and growing dividends to shareholders.

The second is interest payments on bonds. Bonds are effectively loans to companies or governments. Investors receive an interest payment each year, plus their money back at the end of the term providing the issuing company or government doesn’t experience any payment problems. Collective fixed income funds will invest in a range of bonds, often with the aim of delivering an income to investors. Unlike dividends, the income from bonds does not rise or fall, but is laid out up front.

Why use a stocks and shares ISA rather than a cash ISA?

For long-term investors that can ride out short-term volatility, investments will usually give a higher return than cash savings and may provide greater protection against inflation. But stock markets can be choppy, and – unlike a cash ISA - your investments can go down as well as up in value. That means, potentially, getting back less than you put in.

Stocks and shares ISAs are a useful tool in your long-term savings. They can help ensure that you keep more of the money you earn on your savings and investments. They provide real flexibility in terms of the investments you can choose, allowing you to tailor your ISA to your long-term financial ambitions.

Source:
¹AJ Bell - ISAS unpacked: who holds them and how much do they have? - 19 March 2025
²Gov.uk - Annual savings statistics: background and methodology - December 2024
³Gov.uk - Tax-free savings newsletter 19 November 2025 - 22 December 2025
⁴AJ Bell - Is it better to invest early on? - 29 August 2025
⁵Moneyfactscompare - How many ISAs can I have? - 15 January 2026

Risk Warnings

Investors should refer to the prospectus or offering documentation for the funds full list of risks.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Levels and basis of taxation may change from time to time and depend on personal individual circumstances.