A stocks & shares ISA is not an investment in itself, it is simply an investment ‘wrapper’ which hold funds and shares of an investor’s choice in a tax-efficient manner. ISA stands for Individual Savings Account and the current allowance is £15,240 for the financial year 2016/2017. This allowance can be fully invested into a stocks & shares ISA or cash ISA – or a mixture of both in any proportion.

While a cash ISA will offer a steady return, a stocks & shares ISA is more suited to those looking to take greater risk in pursuit of higher returns.

The main advantages of a stocks and & shares ISA are:

  1. Potential higher returns than a cash ISA (particularly in the current low interest rate environment) if the underlying assets perform well
  2. No capital gains tax on any profits made by selling assets or ‘cashing in’ on assets within the ISA

Apart from dividend income charged at 10% – the rest of the income in this type of ISA is tax free.

UK residents aged 18 and over can apply to open a stocks & shares ISA. These type of ISAs  can be opened at banks, online execution only brokers (who typically offer a greater choice of possible investments to hold) as well as through a financial adviser.

It is worth noting that an investor can only pay into one stocks and shares ISA and one cash ISA  per tax year, but can open a new stocks & shares ISA and cash ISA with a different provider each year.