If you’re about to get started with your first investment using a Stocks and Shares ISA, you’re not alone. According to government figures, there were more than four million people using ISAs in the UK during the 2023/24 tax year.
One of the biggest advantages of ISA investing is that you get a £20,000 tax-free annual allowance, and any profits that you make with the money you subscribe can be withdrawn with no obligation to pay capital gains tax (CGT) or any other form of income tax. This includes dividend tax for any stocks held that pay out regular dividends.
But what should you keep in mind when opening a Stocks and Shares ISA to begin your investing journey? Let’s take a deeper look at some key considerations before you get started:
Use Your Allowance or Lose It
As a tax-free wrapper, your ISA is a powerful tool for making profits on your investments in a way that you won’t be charged tax on. This is because you get a tax-efficient annual allowance each year. But there are some rules to follow when using your allowance.
Your annual allowance for Stocks and Shares ISAs is £20,000, and this limit will remain in place until at least 2030, thanks to a government freeze on changes.
This isn’t the case for the sister account of the Stocks and Shares ISA, the Cash ISA. Beginning in 2027, Cash ISA allowances will fall to £12,000 per year. However, this change won’t impact Stocks and Shares ISA investing.
What’s important to keep in mind for all ISA participants is that your annual allowance won’t carry over into the new tax year. This means that you’ll need to invest £20,000 each year between the 6th of April and the 5th of April to fill your allowance.
If you invest £11,000 during the tax year, your remaining allowance won’t roll over into the next tax year.
However, you have no obligation to fill your allowance every year, and you can just as easily use your Stocks and Shares ISA to save your spare change. Every little investment can make a big difference over a long time frame.
ISA Investing Rules
There are some rules to keep in mind when opening an ISA. Firstly, you need to be at least 18 years of age to hold an individual savings account. But if you’re younger than 18, your parents can still open a Junior ISA, though you won’t be able to access your investments until you turn 18.
It’s also worth keeping in mind that there are no limits to the number of accounts that you can hold when ISA investing (with the exception of Lifetime ISAs and Junior ISAs, which are limited per person). You could split your strategy between investing and saving by holding a Stocks and Shares ISA and a Cash ISA at the same time.
However, you’ll only ever be able to contribute a total of up to your £20,000 allowance. Noting that in April 2027, the Cash ISA will be capped at £12,000 per tax year for those under 65. But that doesn’t mean you can’t choose to put the remaining £8,000 of your allowance in a Stocks and Shares ISA type instead, or use the full £20,000 allowance strictly for investing.
For instance, you can contribute £5,000 into a Cash ISA and £15,000 into your Stocks and Shares ISA, but you wouldn’t be able to exceed this total.
Managing Risk
Most Stocks and Shares ISA providers offer some form of risk management solution to ensure that you never invest in assets that you’re uncomfortable with.
For instance, the award-winning Stocks and Shares ISA offered by Wealthify allows you to choose your risk level, which ranges from ‘cautious’ to ‘adventurous,’ meaning that you can choose a style that suits your investment goals.
Investing Your Way
The great thing about most modern Stocks and Shares ISA providers is that they can offer plenty of flexibility in terms of what you invest in.
Many platforms provide the option to make only ethical investments that suit your personal ethics, helping to support your investment decisions on your terms.
Likewise, more hands-on investors can liaise with their ISA providers to manage their portfolios. This can help to support more diversification.
Keeping Fees in Mind
You should also keep platform fees in mind when setting up your ISA. Most providers charge platform fees, which are charges for managing your account and can range from around 0.1% to 1.5%, depending on the type of fund you hold.
Providers may also charge trading fees for the buying and selling of shares, which can range from £0 to £25 per trade.
Taking Your First Steps in ISA Investing
For newcomers to investing, Stocks and Shares ISAs are an excellent option. The addition of a tax-free wrapper means that your investments can stretch further, and most providers will offer plenty of help to discover which strategy best suits your investment style.
Be sure to keep your annual allowance in mind as well as applicable management fees, and it’s always worth regularly checking your account to ensure that your investments are growing in the way you expect.
If you’re after an introduction to investing that matches your risk appetite, there’s no better option than to open an ISA.
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