Stocks and Shares ISAs Explained: Essential Knowledge for 2016

However, stocks and shares ISAs remain quite complicated to understand. In this post, we take a look at everything you need to know about stocks and shares ISAs.

What is a Stocks and Shares ISA?

You can split your £15,240 allowance between a stocks and shares ISA and a cash ISA. Or you can select one or the other for your entire investment. A stocks and shares ISA is very different to a cash ISA. Whereas a cash ISA is simply a savings account you don’t pay tax on, in a stocks and shares ISA, you’re actually investing. This could be in anything from corporate and government bonds to shares.

In a stocks and shares ISA, your money is invested into ‘qualifying investments’. With some companies who offer stocks and shares ISAs, you can also get flexible ISAs. This allows you to withdraw some of the money in your account and reinvest it at a later date.

Are They Tax Free?

Unlike a cash ISA, a stocks and shares ISA isn’t tax free. Instead, it’s tax efficient.

You don’t pay capital gains tax on gains made within an ISA. However, you only pay capital gains tax on any investment when you make total gains of over £11,100 anyway, so this is only useful if you exceed this allowance.

Is Investing Right for Me?

The decision about whether to invest in a stocks and shares ISA is one that only you can make. Due to the fact that the value of investments can go up as well as down, you do stand a chance of losing money as well as making it.

Although historically stocks and shares have outperformed cash ISAs, there’s no reason to believe that this will always be the case, especially with current volatility. Poor Chinese economy figures as well as a potential Brexit and the election of a new US President mean that there’s a lot of market turbulence at present.

If you do decide to give a stocks and shares ISA a go, then you should consider sticking with it for the long term. Market turbulence generally seems to even out over long periods, so if you keep your ISA for 3-5 years you should get an accurate reflection of your investment.