Stocks and shares ISA explained: how it works and how to open one (2026/27)
What a stocks and shares ISA is, how the £20,000 allowance works, what you can hold, fees, risks, transferring and whether it is right for you. A plain-English guide for beginners.
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How a stocks and shares ISA works
An ISA is a tax-free wrapper. Inside a stocks and shares ISA you can buy:
- Funds, including index funds and ETFs
- Shares in individual companies
- Investment trusts
- Government and corporate bonds
Any growth, dividends or interest inside it are free from income tax and capital gains tax, and you do not need to report them to HMRC.
The £20,000 allowance
- You can pay in up to £20,000 each tax year (6 April to 5 April) across all your ISAs: cash, stocks and shares, Lifetime and innovative finance.
- Unused allowance does not carry over.
- Since April 2024 you can pay into more than one stocks and shares ISA in the same year.
- Growth does not count towards the allowance, only what you pay in.
Why it matters: tax outside an ISA
Outside an ISA, investors now pay more tax than a few years ago:
| Allowance outside an ISA | Tax above it (basic / higher rate) | |
|---|---|---|
| Dividends | £500 a year | 10.75% / 35.75% |
| Capital gains | £3,000 a year | 18% / 24% |
| Interest | £1,000 / £500 | 20% / 40%, rising to 24% / 44% from April 2027 |
Inside an ISA, all of these are zero. Read tax on investments for the details.
Stocks and shares ISA vs cash ISA
| Cash ISA | Stocks and shares ISA | |
|---|---|---|
| Risk | Your money will not go down | Value goes up and down |
| Return | Interest rate | Investment growth, not guaranteed |
| Best for | Money needed within five years | Money for five years or more |
| Protection | FSCS up to £120,000 | FSCS up to £85,000 if the provider fails, not for falls in value |
Many people hold both: cash for the short term, stocks and shares for the long term.
How to open one
- Pick a platform. Compare fees for your pot size in our investing apps comparison.
- Open the ISA online with your National Insurance number and bank details.
- Pay in a lump sum or set up a monthly payment.
- Choose your investments. Money sitting as cash in the ISA does not grow.
- Leave it alone and review once or twice a year.
Transferring a stocks and shares ISA
Always use the new provider's transfer service. If you withdraw the money yourself, it loses its ISA status and you cannot put it back without using new allowance (unless your ISA is flexible).
Common questions
Can I lose money in a stocks and shares ISA?
Yes. The tax benefits do not protect you from falls in the value of your investments.
Can I take money out of a stocks and shares ISA?
Yes, at any time. Selling investments and withdrawing usually takes a few working days.
How much should I put in a stocks and shares ISA?
Only money you will not need for at least five years, after you have an emergency fund in cash and have paid off expensive debt.
This is general information, not personal tax or financial advice. Tax rules change and depend on your circumstances, so check GOV.UK or speak to an accountant before acting.