Can I Withdraw Money From My Stocks And Shares Isa

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If you want to invest as tax efficiently as possible, it's a good idea to open a stocks and shares ISA.

In this article, we set out:

How does a stocks and shares ISA work?
What are the stocks and shares ISA rules?
What are the benefits of a stocks and shares ISA?
Is it worth opening a stocks and shares ISA?
Can you have multiple stocks and shares ISAs?
What is the stocks and shares ISA limit?
Do I have to include my ISA on my tax return?
How much does a stocks and shares ISA cost?
What can I invest in?
What's the best way to transfer a stocks and shares ISA?

A stocks & shares ISA is a tax-efficient way to invest your money

An ISA, or individual savings account, is a tax-efficient wrapper.

A stocks and shares ISA is particularly useful for sheltering your investment returns from the taxman. It means you don't have to worry about income tax, capital gains tax or dividend tax on any profits you make.

You can contribute up to £20,000 into ISAs in each tax year. We explain more in our guide on ISAs.

If you opt for a stocks and shares ISA, you can choose investments to sit inside the wrapper.

Different types of businesses offer investment ISAs, including:

Banks
Stockbrokers
Fund management companies
Investment platforms

Look carefully at the fees and range of investments on offer before opening an ISA. We have given Fidelity top marks for its low cost ISA offer. Find out more here.

Some ISAs are better value for those with large amounts of money who want to buy and sell investments frequently. Others are best for smaller, less active investors.

Broadly speaking, there are two ways of investing:

If you prefer to choose the investments yourself, a self-invested stocks and shares ISA may be a better fit. Find out why Vanguard has been given five stars from us here.
You can buy what is called a ready-made stocks and shares ISA where an expert or a "robo-adviser" picks and chooses the investments for you. We give Nutmeg top marks for its service. We explain why here.

You can either start investing in a stocks and shares ISA by drip-feeding your money in bit by bit, or by putting a lump sum in.

There are some rules you should be aware of before opening a stocks and shares ISA:

You have to be 18 or over and a UK resident to open one
You get an allowance of £20,000 each tax year
The allowance can't be carried forward to the next tax year, so use it or lose it
You can only pay into one of each type of ISA during any given tax year (we explain more here). This means that you won't be able to contribute into two stocks and shares ISAs

Guide to ISAs: Which ISA should I get?

An ISA is like a chocolate box, and you can pick the flavours that go inside

The big advantage of any ISA is that they shelter your money from tax:

There is no income tax to pay on any profits you make
You don't have to worry about paying dividend tax
Profits are free from capital gains tax
You don't have to declare profits on your tax return either, saving you lots of time

Learn more: Are ISAs tax free?

Without the ISA wrapper, you can only earn £2,000 a year in dividends tax free. Above this and you'll have to fork out between 7.5% and 38.1%, depending on how much you earn and your individual circumstances.

The only tax that you may have to pay is stamp duty charged at 0.5% when you buy shares worth more than £10,000. Find out: How are shares taxed?

You will start to really see the benefits of an ISA over the long term.

Your investments will also be safe if the government decides to cut the tax-free allowances for capital gains, dividends or interest.

Check out this page on self-invested stocks and shares ISAs to see which providers are highly rated by us.

Which ISA is right for me?

ISAs work best when you pick the right one for your savings goal. Take this short survey to find out which ISA is right for you.

It only takes a couple of minutes
No personal details required

Here's an example of how an ISA shelters you from tax:

Let's say you are a higher-rate taxpayer with £80,000 in your stocks and shares ISA:

£65,000 is invested in individual companies' shares and stock market funds = dividend payments of 3.5% a year
£15,000 is in corporate bonds = 4.5% a year
Annual income = £2, 950

Justin Modray, of the financial adviser Candid Financial Advice, explains:

Initially you save £159 a year on dividend and income tax
If your portfolio grows by say 5% a year, in 10 years it's worth just over £130,300
Over the 10 years you'd have saved £4,195 in tax
Sell your wide range of investments again and you'd make a gain of £50,300
Due to the ISA wrapper, you save £7,600 in capital gains tax
Your total tax savings = £11,795

Find out more: How to invest £50,000

If you decide you want to open a stocks and shares ISA, Fidelity is one of the best for ready-made portfolios as we explain here.

If you are fed up with the paltry interest rates on savings accounts, you might be ready to take some risk in the hunt for higher returns.

If you have lots of savings in a low interest rate account or in premium bonds, investing in a stocks and shares ISA can help you earn more from your money.

Note: you should be prepared to leave your lump sum invested for at least five years to ride out any short-term market wobbles.

As with all investing there are no guarantees that you will get your lump sum back so pick carefully.

Find out the top stocks and shares ISAs according to our independent ratings here. Some providers offer ready-made portfolios while others are more suitable for DIY investors.

Find out more: beginner's guide to investing.

Top rated self-invested stocks & shares ISAs

Our independent star ratings can help you find a low-cost stocks and shares ISA

Barclays

Investment ISA

Close Brothers Asset Management

Close Stocks & Shares ISA

InvestEngine

ISA

Trading 212

Trading212 ISA

Vanguard Asset Management

Vanguard ISA

Yes, you can open a new stocks and shares ISA with a different provider every year if you wish. But you can only pay into one stocks and shares ISA during each tax year.

So for example:

If you opened a stocks and shares ISA in a previous tax year, you could open another stocks and shares ISA in the current tax year.
But you are only allowed to contribute into one of them in any one tax year, so you would have to choose between them. If you transfer money between ISAs, this doesn't count as a contribution.

The same applies to other types of ISA too: so you can only open one of the same type in any one tax year. And you can only only contribute into one of the same type of ISA in a single financial year.

Find out more in our guide to ISAs.

You can save up to £9,000 each tax year with a Junior ISA

You can save up to £20,000 each tax year, known as the ISA allowance.

You can share the allowance around different types of ISA but two of the same type.

NOTE: the lifetime ISA has a £4,000 limit and this counts as part of your total £20,000 allowance.

You can read our guide on types of ISAs here.

Do I have to include my ISA on my tax return?

Good news! You do not have to declare any income from an ISA on your tax return. That's another perk to add to the list.

Find out more: How to fill in a tax return

Unlike a cash ISA, which is normally free, there are costs involved with a stocks and shares ISA.

Here are some that you may encounter:

Annual fee: paid to the ISA provider either as a set amount or a percentage of the value of your investments
Dealing charges: a fee paid when you buy and sell funds and shares
Fund manager fee: if you invest in funds
Annual management charge: for looking after your investments
Exit fees: if you want to transfer to another provide

Find out: The impact of fees on investment returns

If you're looking for a low-cost provider, Fidelity and Vanguard are some of the best as we explain here.

What can I invest in?

Your choice of investment depends on the company you choose to open the ISA with.

Most investment platforms have lots of choice of different types of asset. For example:

Shares: you buy a tiny bit of a company on the stock market and so benefit from growth in that company – but if the business starts to struggle, the price of your share may fall. Find out how to choose investment funds.
Bonds: effectively you lend money to companies or governments for a set period of time in return for interest payments
Funds or investment trusts: your money is pooled with many other investors and used to buy into lots of different companies in the UK or worldwide. It is an easier way to spread risk rather than trying to buy lots of individual shares. Find out how to buy shares.

Find out why Fidelity gets top marks from us in this article on the best investment platforms for beginners.

Do stocks and shares ISAs make money?

There are no guarantees that you will make money by investing in a stocks and shares ISA.

With that said, if you invest in a diverse range of investments and remain invested for a number of years, there is a high probability that you will have made money on at least some of those assets.

If your investments are successful, you should easily be able to earn more than you would through a savings account.

Find out more: What is the best savings account for a lump sum?

Can I lose all my money?

Yes because your savings are at risk. But you only really make a loss if you sell your investment for less than you bought it for.

Here are some tips:

Invest in an ISA for the long term: If you don't sell, the loss hasn't been "crystallised". If you leave your lump sum invested, your investment account might start to increase, so don't panic if things go south over a short timeframe.

Spread your risk: By investing across lots of different asset classes. You also reduce the risk of losing all your money because when one investment moves down, another is likely to be moving up.

Find out more in our beginner's guide to investing

ISA transfers are really simple, just contact the new provider and fill out an ISA transfer form. The provider will do the rest.

Transfers should take no longer than:

15 working days for cash ISAs
Or 30 calendar days for a stocks and shares ISAs

When you transfer a stocks and shares ISA you have two options:

"In-specie" transfer – Opt to leave your investments untouched as long as the new provider offers access to the funds and shares you own, meaning you don't miss out on any investment gains during the switching process
Sell your investments and move the cash across – This means you will have to select investments through your new provider

NOTE: in-specie transfers are typically more expensive than cash transfers. Some providers charging a fee for each investment you hold so do your homework first.

Whatever you do, don't just withdraw your cash and close your account as you'll lose the tax-free total that you have built up in previous years.

When you reinvest your money it will eat into your current year's allowance.

Nutmeg Fixed Allocation portfolio

EXPERT RATING

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Unity Mutual

Unity Mutual Lifetime ISA Portfolio

Moneybox

Moneybox portfolio

Should I cash in my stocks and shares ISA?

Unless you've got something you want to spend the money on (such as a house purchase), it's probably a bad idea to cash in your stocks and shares ISA.

Once you withdraw money from your ISA, it will no longer be growing in a tax-free environment. You might also have to pay fees for selling holdings. So make sure you think carefully before cashing in the money in your ISA.

If you aren't happy with your ISA provider, make sure you should transfer your money to a different company rather than cashing in. This is because you don't use up any of your ISA allowance by transferring.

By comparison, if you withdraw money from an ISA and decide to reallocate this cash into a different ISA, this would be a new contribution and would therefore use up some of your allowance.

Find out more: Guide to ISAs

Is a cash ISA better than stocks and shares?

The answer to this question largely depends on when you want access to your money.

If you think you might need to access your savings account in less than five years and you are afraid of losing money, a cash ISA sounds like the best option.

Alternatively, if you are happy to leave your money invested for the long term and are comfortable taking on some risk, you should start investing in a stocks and shares ISA instead.

But you don't have to pick one or the other: you could keep your emergency buffer in a cash ISA and invest the rest in a stocks and shares one.

Find out more: Should I invest in a cash ISA or stocks and shares ISA?

How do lifetime ISAs work?

If you are between the ages of 18 and 39 you can also open a lifetime ISA.

These come with a 25% government bonus if you use the ISA to buy your first home or save for retirement.

There are two types of lifetime ISA:

A cash lifetime ISA (which is better if you are saving for a home)
A stocks and shares lifetime ISA (which is better if you are saving for retirement)

The maximum contribution is £4,000 a year, which will earn you a £1,000 bonus. Find out more: What is a Lifetime ISA?

If you're shopping for a stocks and shares lifetime ISA, Nutmeg is one of the best as outline here.

How are investments that are not inside an ISA taxed?

Any investments that are held outside an ISA may be liable for income tax, capital gains tax or dividend tax.

Here are the thresholds for the 2021-22 tax year:

Capital gains tax: No capital gains tax to pay on the sale of assets such as shares or an investment property up to a profit of £12,300
Dividend tax: You can earn up to £2,000 tax free from dividends
Income tax: Basic-rate taxpayers can earn up to £1,000 in interest payments before having to pay income tax. Higher-rate taxpayer you can earn £500, no allowance for additional rate taxpayers.

Find out more: The 2021/22 tax year: key changes to your finances

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