8 things you need to know before opening a Stocks and Shares ISA

Our comprehensive look at how Stocks and Shares ISAs work. Read on to see if they are right for you.

Stocks & Shares ISAs have been popular investments for millions of people since they were first introduced back in 1999.

However, there have been many changes to these products over the years so here’s our list of the key things you need to know.

What is it?

It’s effectively a tax wrapper that can be placed around a wide range of investment products, such as unit trusts, exchanged traded funds and individual stocks and shares.

You need to be at least 18-years-old to open a Stocks & Shares ISA.

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What are the tax advantages?

Any increase in the value of the investments held in your Stocks & Shares ISA won’t make you liable for Capital Gains Tax.

Investment income within the ISA, as well as dividends paid on equity investments within, are free of Income Tax too.

Who do they suit?

The simple answer is potentially anyone – particularly those who don’t need immediate access to their money and are willing to keep it invested for a number of years.

For many people, a Stocks & Shares ISA will be a great long-term addition to their portfolio, especially given the tax advantages.

Are they risky?

Every investment comes with an element of risk.

The golden rule is that you should never invest what you can’t afford to lose because the stock market can be unpredictable.

However, some investments are riskier than others. For example, emerging markets are generally more volatile than UK corporate bonds.

It all comes down to your willingness and ability to cope with risk.

As with any investment, a decision needs to be made with your financial situation and long-term goals in mind.

The investment limits

The amount you can put away in ISAs during each tax year has risen dramatically over the years from £7,000 to the current limit of £20,000.

However, you have a set time to take advantage: any unused allowance can’t be carried over to the next tax year, so if you don’t invest it then you’ll lose the opportunity.

How to buy

You can buy an ISA from various sources.

These include dedicated ISA providers, directly through a fund manager, from discount brokers or fund supermarkets, banks, an independent financial adviser, or through an online share account or stockbroker.

However, the various costs and charges will vary so it pays to shop around. If you are in any doubt, then consider talking to an independent financial adviser.

Ready to invest but want to shield your returns from the taxman? Open a Stocks & Shares ISA with Hargreaves Lansdown now

How do you invest in an ISA?

You can either make lump-sum investments or drip-feed the money into your ISA over the course of the year.

There are pros and cons to each approach. It all depends on your personal preferences and financial situation.

For example, investing early gives your money a greater chance to benefit from the stock market. However, drip feeding enables you to

Other rule changes

The entire ISA investing environment has become more relaxed in recent years.

For example, you can now transfer existing cash ISA holdings into a Stocks & Shares ISA – and vice versa.

You can also transfer your savings between providers.

However, if you want to transfer money you’ve invested in an ISA during the current year, you must transfer all of it.

Ready to invest but want to shield your returns from the taxman? Open a Stocks & Shares ISA with Hargreaves Lansdown now

The information included in this article does not constitute regulated financial advice. You should seek independent, professional financial advice before making any investment decision.

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