A Stocks and Shares ISA can be a great way to invest, as you don’t pay any income tax or capital gains tax on your investment returns. But as with other ISAs, you need to make sure you stay within the rules, and with investing comes more risk compared to cash savings.

While this article is intended to be helpful, it is not advice. If after reading the information, you’re still not sure, it’s worth considering financial advice.

What is a Stocks and Shares ISA?

ISAs are savings and investments accounts that offer tax incentives. While a Cash ISA lets you save tax-free, a Stocks and Shares ISA is a tax-efficient investment account that lets you put money into a range of different investments.

When you invest in a Stocks and Shares ISA, there’s no income tax to pay on any dividends or interest generated, and no capital gains tax if you make a gain when you sell your investments. Keep in mind that a Stocks and Shares ISA is designed for investments, so you won’t get interest if you hold any cash in this type of ISA. The value of investments go up and down over time, so you could get back less than you put in.

If you’re not sure whether investing is right for you, read our ‘is investing right for me?’ article. Remember investments can be volatile in the short term, which is why you should only invest if you are happy to put away your money for at least five years. If you have a shorter time horizon you might want to consider a Triodos Cash ISA as another way to make an impact with your money while sheltering it from tax.

You can save or invest up to £20,000 into ISAs each tax year

Most UK adults can pay up to £20,000 into ISAs each tax year, but this allowance can be split between different types of ISAs. For example, you could put £10,000 into a cash ISA, and the remaining £10,000 into a Stocks and Shares ISA.

By using your ISA allowance every year you can build up a significant portfolio of tax-efficient savings and investments. You don’t need to use the full allowance, but by saving little and often you can build up a useful nest egg which is sheltered from tax.

You can mix and match how much you want to pay into each type of ISA each tax year. This can be useful for financial planning as you can decide how much you want to put into cash and investments depending on your situation and goals.

Thanks to new rules which came in on 6 April 2024, you can now pay into several ISAs of the same type in the same tax year. For example, you could pay some of your ISA allowance into a cash ISA with one bank, and the rest into a cash ISA with a completely different bank. Just so long as you don’t go over your £20,000 allowance.

Can I take money out of a Stocks and Shares ISA?

Yes, you can take money out at any time. But there are two important things to be aware of:

1. You may need to sell your investments. It usually takes three working days for the trade to settle and the proceeds to be available. Depending on the price when you sell compared to the price you bought the units for, you may get back more or less than you put in.
2. When you take money out of an ISA, you usually lose the ISA status. This means you can’t put that amount back into the ISA without it counting as a new ISA subscription. For example, if you put £20,000 into an ISA and then took £10,000 out in the same tax year, you wouldn’t be able to put it back in until the next tax year when you get your next allowance. Some Flexible ISAs, such as the Triodos Cash ISA allow you to put cash back in within the same tax year, but the Triodos Stocks and Shares ISA doesn’t.

The main lessons here are that Stocks and Shares ISAs are designed for the long term and aren’t ideal if you think you’ll need to dip into it in the short term. If you want to make your money work harder, but need ready access to it, you might want to consider a Triodos Savings Account or Triodos Cash ISA.