Stocks and shares ISAs

Stocks and shares ISAs

Stocks and shares ISAs

ISAs are a popular means for generating money through investments, and stocks and shares ISAs can be among the most lucrative when handled correctly. Unlike other forms of ISA, stocks and shares ISAs usually come with greater barriers to entry and can be higher risk - but also offer higher earning potential.

One of the most appealing features of stocks and shares ISAs for many investors is that up to 10,200 can be invested tax-free this tax year (going up to 10,680 for 2011/12), less any amount the investor has saved in a separate cash ISA. This means you can avoid losing much of your earnings to income tax and capital gains tax - which could sometimes be as high as 50 per cent for higher-band tax payers. High tax payers can also benefit from reductions on the dividend tax they are required to pay if they have a stocks and shares ISA.

You'll have many options of where to invest your stocks and shares ISA - whether it's in individual bonds and shares or in pooled investments, like investment trusts. As well as offering different levels of earning potential, these various forms of investment also carry variable risks, making it important to choose carefully if you are not experienced in the investment field. You may even consider consulting a financial adviser to help you decide which type of investment would be best suited to your situation.

You can start earning money from stocks and shares ISAs as soon as you turn 18, but you should be aware that you can only invest with one stocks and shares ISA per financial year - so it's critical to choose the right one. Some providers may have minimum investments that will need to be met, which could put them out of your price range too.

You can invest in a stocks and shares ISA if you already have a cash ISA, even if it's held with a different provider - and you can transfer funds from a cash ISA to a stocks and shares account too. The reverse is not possible however, and if you don't reach the 10,200 limit within the tax year, the remaining tax-free allowance cannot be carried over to the subsequent year.

These are some of the considerations you'll need to think about when choosing your new ISA, as is the recommendation that investors leave their funds untouched for at least five years in order to enjoy the maximum earning potential.

The author of this article is a part of a digital blogging team who work with brands like Standardlife. The content contained in this article is for information purposes only and should not be used to make any financial decisions.

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