Stocks and shares ISAs: everything you need to know
Investment gains and dividends are protected from the taxman in a stocks and shares ISA. We explain how they work and how to open one, as well as the transfer rules.
Sam Walker
Stocks and shares ISAs are a popular way for people to start investing and secure tax-free benefits.
Over four million people (4.09 million) added money into a stocks and shares ISA in 2023/24, up from roughly 3.8 million in 2022/23, according to the latest data from HMRC.
Article continues belowTry 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What is a stocks and shares ISA?
A stocks and shares ISA is a tax-efficient investment account. You can put up to £20,000 into ISAs each tax year, which starts on April 6 and ends the following April 5. This is known as the annual ISA allowance. You could put all £20,000 into a stocks and shares ISA, or split the allowance across different types of ISAs.
Stocks and shares ISAs carry more risk than a cash ISA, as the value of investments can go up or down. However, they can provide greater returns over long periods of time.
The average stocks and shares ISA fund grew by 11.22% in the year to February 2026, three times more than a typical cash ISA (3.48%) over the same period, according to research by Moneyfactscompare.
Clare Stinton, senior personal finance analyst at investment platform Hargreaves Lansdown, said: “Investing gives your money a real chance to outpace inflation and grow over time – opening the door to new possibilities that saving alone might not unlock.”
Stocks and shares ISAs are available to anyone over the age of 18 who is a UK resident for tax purposes. You may also be eligible if you’re a non-UK tax resident, for example if you’re a member of the armed forces or a crown servant living abroad.
How do stocks and shares ISAs work?
A stocks and shares ISA allows you to invest in a wide range of assets including shares, funds, investment trusts and bonds with no tax owed on any gains.
Stocks and shares ISAs can be set up through banks or investment platforms. There are several different types to choose from.
The first – a self-select or DIY stocks and shares ISA – allows you to pick your own shares, funds or bonds. This option is best-suited to someone who wants to manage their portfolio, although it can be more time-consuming.
The alternative is a managed stocks and shares ISA, which can either be monitored by a fund manager, or an automated service, often called robo-investing.
Managed accounts typically work by letting you choose a profile based on your risk appetite. Your assets are then arranged depending on this appetite.
For example, an ‘adventurous’ profile might invest more in, typically, riskier equities than bonds, while a ‘tentative’ one might invest more in bonds and less in equities. Managed stocks and shares ISAs can be useful for investors wanting to take a more hands-off approach.
How to open a stocks and shares ISA
When applying for a stocks and shares ISA, which can usually be done on the provider’s website, you will often need details like your name, date of birth, National Insurance number and address to hand.
Once the account is set up, you can start investing with a lump sum or by setting up regular payments. Regular payments can usually be made monthly and allow you to start investing with smaller amounts on a consistent basis.
Is a stocks and shares ISA tax-free?
Returns in stocks and shares ISAs are free from income tax, and do not need to be declared on any tax or self-assessment forms.
Returns are also sheltered from capital gains tax – the tax paid on profit when an asset is sold.
Any losses made on investments within this ISA cannot be used to offset capital gains applicable on other investments.
Dividend income tax also does not apply to stocks and shares ISAs, allowing tax savings on dividends exceeding the £500 tax-free allowance.
Are stocks and shares ISAs subject to inheritance tax?
While stocks and shares ISAs are shielded from the impact of capital gains tax and income tax, the same cannot be said for inheritance tax.
ISAs count towards your estate (meaning the property, money and possessions of someone who has died). Inheritance tax is usually payable on parts of an estate above the £325,000 threshold – although some people may be able to increase their threshold. The standard inheritance tax rate is 40%.
Spouses and civil partners can pass assets to each other inheritance tax-free.
You can pass on your ISA to a surviving spouse or partner and they can continue to receive income and growth from it tax-free through an Additional Permitted Subscription (APS).
This also means the money in the ISA will not be subject to inheritance tax due to the 100% spousal IHT exemption, though it will form part of your partner's estate when they die.
How many stocks and shares ISAs can I have in the UK?
Individuals can hold multiple ISAs in the same tax year. However, deposits must stay within the annual £20,000 ISA allowance.
Holding two or more stocks and shares ISAs can give you greater access to a wider selection of investments, although it may be more time-consuming than having one.
Stinton, from Hargreaves Lansdown, said: “Whether you choose to spread your ISAs or have everything under one roof often comes down to personal preference. Keeping everything with one provider means less admin, fewer passwords and paperwork, and a straightforward snapshot of how your money is performing overall. However, some people may like the idea of having separate ISA pots for different goals, allowing them to separate their kid’s tuition money from their future travel plans.”
Can you transfer stocks and shares ISAs?
Stocks and shares ISAs can be transferred from one provider to another and there are two ways you can do it – via an in-specie transfer or cash transfer.
You must contact both your current and new providers, typically by completing an online form or by visiting a local branch.
But there are things to consider before putting in a transfer.
Stinton, from Hargreaves Lansdown, said: “It’s worth pausing to think about the bigger picture. This is your hard-earned money, so where you keep it – and the provider you trust to look after it – should reflect what matters most to you. Consider whether this is a slick and easy-to-use app or reliable customer service with someone you can actually speak to.
“If a time-limited deal is your main motivation, make sure you read the small print and double check for any exit fees that may hit you on the way out.”
Do note, you may be charged a fee by your existing or new broker for transferring an ISA.
Can stocks and shares ISAs be transferred into cash ISAs?
A stocks and shares ISA can be transferred into a cash ISA, and vice versa. You can decide how much you wish to transfer – you might want to transfer just part of the ISA or the full amount.
Cash ISAs and stocks and shares ISAs are not an either/or option. You can hold money in cash ISAs as well as stocks and shares ISAs. Plus, you can hold cash within a stocks and shares ISA – although it may have a lower interest rate than competitive cash ISAs.
You could pay cash into a stocks and shares ISA to use up this year's allowance, and then invest it at a later date when you’re ready.
Our cash ISA vs stocks and shares ISA guide explores how to choose between the different types of ISAs.
