The most googled ISA questions … and their answers

Staci West 07/03/2023 in Multi-Asset

What do you need to know about stocks and shares ISAs? We researched some of the questions most often asked online – and provided the answers.

What is an ISA?

Individual Savings Accounts (ISAs) are tax wrappers that wrap around your chosen investment and help you save tax-free. They were first introduced back in 1999 by Gordon Brown when he was Chancellor of the Exchequer. Initially there were mini and maxi ISAs. However, changes were introduced in April 2008 that saw mini/maxi replaced by the much simpler cash ISAs and stocks and shares ISAs.

Who can open ISAs?

UK residents aged at least 18-years-old can open a stocks and shares ISA, innovative finance ISA, or Lifetime ISA. Those aged at least 16-years-old can open a cash ISA. For Lifetime ISAs, you also need to be under 40-years-old and the annual limit is £4,000.

How does the annual ISA allowance work?

Every tax year– which runs from April 6 th to April 5 th – you can save or invest up to £20,000 in an ISA ‘wrapper’. The benefit of putting your savings or investments into an ISA wrapper is that you won’t have to pay any income or capital gains tax on your returns.

What is a Junior ISA?

A Junior ISA is just like an adult ISA, you just have to be under 18 years of age to have one. A parent or guardian can set up a Junior ISA on behalf of a child and anyone can put money into it up to a total limit of £9,000 each tax year.

Can you have a Cash ISA and a Stocks and Shares ISA?

Yes. The £20,000 ISA allowance can be split any way you like across a stocks and shares ISA, cash ISA, Lifetime ISA (maximum of £4,000) and an Innovative Finance ISA, as long as you stay within the overall limit.

Can you have an ISA and a savings account?

Yes, you can have an ISA and a savings account. You will not pay any income tax or capital gains tax on the ISA. On a savings account you might.

What funds do investors buy for ISAs?

You can hold a variety of assets in a stocks and shares ISA. These include shares in companies; unit trusts, investment trusts and investment funds; corporate bonds; and government bonds. You can move your ISA from one provider to another at any time. It’s also possible to transfer your savings to the same – or different type – of ISA.

What are the pros and cons of a stocks and shares ISA?

The positives are their tax-efficient qualities. You won’t be liable for any income or capital gains tax on the returns generated by your investments. Of course, a stocks and shares ISA isn’t a product in itself; it’s purely a wrapper that goes around your chosen investments. Therefore, they are still liable to the same issues as they would if you were holding individual assets, such as shares or funds, outside of an ISA. You will still need to research potential holdings in advance and ensure you understand what you are investing in and are comfortable with the potential risks.

Are stocks and shares ISAs worth it?

It makes total sense to hold investments within an ISA wrapper as it shields your growing portfolio from longer-term income and capital gains tax. However, the type of ISA that’s most suitable will depend on your personal circumstances, including your financial objectives and attitude to risk. For example, if you can’t cope with market volatility, or need the money within a couple of years, a cash ISA may be a safer option. However, if you’re investing over multi-decades and can cope with the value of your pot rising and falling over time, then a stocks and shares ISA increases your chance of longer-term returns.

Where to invest in a stocks and shares ISA

This will all depend on your investment goals. For example, if you are a lower risk investor, you’re likely to have more assets in asset classes such as fixed income. However, if you can afford to take more risk – in the hope of generating better returns – then your portfolio will have a higher equity component.

Can stocks and shares ISAs be transferred to cash ISA?

Yes, they can. For all transfers, you must contact the company to which you want to move to and give them details of your plans so they can explain the process. It’s also important to check with your provider for any restrictions they may have on transferring ISAs and to clarify any fees that may be applicable. You may also be able to transfer with the same provider if they have both products.

How do I become a millionaire with a stocks and shares ISA?

This will all depend on how long you are invested, the amount of money you’re committing each year, and the success of your chosen assets. However, the good news is that it is possible. In fact, the UK currently boasts 2,000 ISA millionaires, according to an analysis of official data. InvestingReviews.co.uk used a series of Freedom of Information (FOI) requests to establish the top 60 ISA millionaires had pots averaging a remarkable £6.2m. It noted that investors starting from scratch today could expect to hit seven figures in around 22 years if they invested the maximum £20,000 each year, with a compounded 7% annual return.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.