• Core benefit: A stocks & shares ISA lets you invest in funds, shares and other assets tax-free - meaning you pay no income tax or capital gains tax on any returns.

• Who it’s for: This type of ISA is worth considering if you're comfortable with market ups and downs and want higher growth potential than found through immediate cash savings. It's ideal for long-term investors - typically 5+ years - to help ride out any market volatility

• What to compare: Look at fees including any platform and fund charges from the ISA provider, investment choice, ease of use and performance tracking tools - these factors can all significantly impact your returns over time.

A stocks & shares ISA, also known as an investment ISA, is a tax-efficient account used to invest in assets like company shares, bonds, and investment funds.

The primary advantage is that your investment growth is shielded from the most common forms of tax in the UK. Within this ISA "wrapper," you do not pay:

• Capital Gains Tax on your profits.

• Dividend Tax on payouts from shares.

• Income Tax on any interest earned.

For the 2026-27 tax year, every adult has a £20,000 annual ISA allowance. You can allocate this entire amount to a stocks & shares ISA or split it across different ISA types.

New tax year, new rules

From 6 April 2027, new rules will limit how some people can use their ISA allowance in relation to a cash ISA. Here's what's changing.

The total £20,000 limit stays the same, but if you're under 65 you’ll only be able to put up to £12,000 into a cash ISA each year.

If you want to use your full £20,000 tax-free allowance, the remaining £8,000 can be invested in a stocks & shares ISA or other non-cash ISAs.

To open a stocks and shares ISA you need to be at least 18 years old and a UK resident. You also can’t open a stocks and shares ISA for someone else - you have to do it yourself.

You can pay into more than one stocks and shares ISA during the tax year and you can have a cash ISA, lifetime ISA and an innovative finance ISA open too, provided you don't pay in more than £20,000 across all of them in the same year.

You can open a new stocks and shares ISA each tax year if you wish, and you don't need to close old ones to open a new one.

There are two main things to consider when choosing a stocks and shares ISA: 

• control

• costs

Let's take each a closer look at each of these factors.

Control

How much control over the investments linked to your ISA do you want?

If you don't want to choose specific stocks and shares yourself, you can get someone to do it all for you, or choose an option that greatly simplifies the process.

If you do want to choose your own investments, you need to look at how much of the market your chosen provider covers.

This can be anything from a few in-house funds all the way through to complete coverage of almost every stock, share, bond and fund available worldwide.

Once you've decided to open an investment ISA, you need to decide what to do with the money you put in there.

1. Decide if you want to go for a managed ISA or if you plan to take more control

2. If you opt for a managed ISA, you simply need to answer a few questions about your savings goals and how comfortable you are with risk

3. Transfer some cash to the ISA provider

4. If you've decided to take more control of your money, you can now start buying and selling individual shares, funds and more to hold in your portfolio yourself

5. If it's a managed ISA, they'll take it from here

Lots of ISA providers offer tips and tools on the various funds they offer to help you choose between them - and some will even offer model portfolios for you to copy.

If you're unsure how best to proceed, you can speak with your ISA provider in the first instance. They can then discuss specifics relating to your ISA.

Tax efficiency

Returns generated within a investment ISA, including capital gains and dividends, are tax-free, providing significant tax advantages compared to investing outside of an ISA wrapper.

Potential for higher returns

Investing in the financial markets through a investment ISA offers the potential for higher returns compared to cash savings accounts over the long term, although returns are not guaranteed.

Investment flexibility

Investment ISAs offer a wide range of investment options, allowing investors to create a diversified portfolio tailored to their risk tolerance and investment goals.

Retirement planning

Stocks and Shares ISAs can be used as a tax-efficient vehicle for retirement savings, providing investors with the opportunity to build a substantial nest egg for their later years.

Compound growth

Reinvesting dividends and capital gains within investment ISAs can accelerate the growth of investments over time through the power of compounding.

Market risk

Investing in the financial markets carries inherent risks, including the risk of capital loss due to market fluctuations, economic downturns, or geopolitical events.

Volatility

Investment ISAs are subject to market volatility, with the value of investments fluctuating over time. Investors should be prepared for short-term fluctuations and focus on long-term investment objectives.

Inflation risk

Inflation erodes the purchasing power of money over time, potentially reducing the real value of investment returns. Investors should consider inflation risk when planning their investment strategy.

Currency risk

Investing in international assets within a investment ISA exposes investors to currency risk, as fluctuations in exchange rates can impact the value of investments denominated in foreign currencies.

Liquidity risk

Some investments within a Investment ISA, such as certain types of bonds or real estate, may have limited liquidity, making it challenging to sell or exit positions quickly.

This quick checklist can help you to determine if a stocks and shares ISA is right for you. Confirm that:

• You want to grow your money over the long term

• You're happy to leave your money invested for several years

• You still have some of your annual ISA allowance available

• You understand that your investments can rise and fall in value, and you may get back less than you invest

If you feel unsure about how this type of account works, you speak to a trusted qualified financial adviser before making any decisions.

Stocks and shares ISA

• You invest your money in the market, so your returns can go up or down depending on performance

• You aim for higher long-term growth, but you take on more risk

• You should plan to stay invested for at least 5 years to ride out market volatility

• You can choose from a wide range of investments like funds, shares and bonds

Cash ISA

• You save your money as cash - earning interest at a fixed or variable rate

• You get more certainty as your balance won’t fall (as long as your provider is protected)

• You can use it for short-term goals or emergency savings

• You typically get lower returns than investing, especially over the long term

Stocks and shares ISAs let you put money in the markets while escaping tax on returns, but they're not the only way to do this.

Pensions and lifetime ISAs also let you escape tax on the money you make from the markets - and come with added tax breaks on top. But as they come with age restrictions on when you can withdraw your money, they're best used for long-term savings.

If you're saving for the short term or don't want to risk your money in the hope of higher rewards, a simple savings account or cash ISA might be your best bet.

Don't forget you also have a tax-free allowance for everything from savings interest to capital gains - meaning you need to earn a fair amount before the tax-free status of an ISA comes into effect.

And while you might not pay tax on your returns now, if things go well you could find the extra protection that an ISA offers rather useful in a few years' time.

Investment ISA FAQs