Stocks and shares ISAs: how they work, the tax rules and the April 2027 changes

A stocks and shares ISA is a tax-free wrapper for investments such as funds and shares. This guide explains the 2026/27 allowance, the tax treatment, how transfers work, the limits of protection and what changes from 6 April 2027.

What a stocks and shares ISA is

An Individual Savings Account (ISA) is not an investment in itself. It is a tax wrapper, meaning a type of account that sits around whatever you hold inside it and changes how that holding is taxed. A stocks and shares ISA is the version designed for investments. GOV.UK says it can hold company shares, unit trusts and other investment funds, and corporate and government bonds. Long-term asset funds belong in this type of ISA too. You must be 18 or over and resident in the UK, or be a member of the armed forces or a Crown servant (or their spouse or civil partner) living abroad. An ISA cannot be held jointly with someone else.

The money does not have to stay invested at all times. Cash can sit inside the account while it waits to be invested, although the tax treatment of that cash is changing from April 2027, as explained below. The value of investments can fall as well as rise, so you can get back less than you put in.

The allowance and the tax rules

For the 2026/27 tax year, which runs from 6 April 2026 to 5 April 2027, GOV.UK says the most you can pay into ISAs in total is £20,000. You can put all of it in one account or split it across several, for example between a stocks and shares ISA and a cash ISA. Only one Lifetime ISA can be paid into each year, with a £4,000 limit. The allowance applies to each tax year. ISAs stay open after the year ends, and what is already inside keeps its tax-free status.

GOV.UK states that no tax is due on income or capital gains from investments held in an ISA, and you do not need to report ISA income or gains on a tax return. Income here means dividends (a share of a company's profits paid to its shareholders) and interest. A capital gain is the profit when something is sold for more than it cost. Outside an ISA, GOV.UK gives a dividend allowance of £500 for 2026/27, with dividends above it taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate and 39.35% for additional rate. Capital Gains Tax has a £3,000 tax-free annual amount, with gains above it taxed at 18% or 24% depending on your income band.

A worked example

The figures below are illustrative only and not a forecast. Suppose a basic rate taxpayer holds investments outside an ISA that pay £1,200 of dividends in a year and, separately, sell holdings at a £6,000 gain, with no other dividends or gains. On the dividends, £1,200 less the £500 allowance leaves £700 taxable, and 700 multiplied by 10.75% is £75.25. On the gain, £6,000 less the £3,000 annual exempt amount leaves £3,000, and 3,000 multiplied by 18% is £540, assuming the gain fits within the basic rate band. The total is 75.25 plus 540, which is £615.25. If the same holdings and the same figures sat inside an ISA, the tax on both would be nil.

Moving an ISA and what protection exists

GOV.UK explains that you can move all or part of your ISA savings to a new provider, and move into the same type of ISA or a different one. Money paid in this tax year and in earlier years can both be moved. The key rule is not to withdraw the money yourself: if you do, that amount loses its tax-free status and the allowance used cannot be reinvested. Instead the new provider arranges the move using its transfer form. Providers have up to 30 calendar days for most transfers, and up to 15 working days for a cash ISA moving to another cash ISA. Providers may apply restrictions or charge fees. If a transfer is delayed, the Financial Ombudsman Service can help once the provider has had a chance to respond.

Protection is different from a bank deposit. The Financial Services Compensation Scheme (FSCS) says it covers up to £85,000 per eligible person, per firm, for investment firms that failed after 1 April 2019, where the firm is authorised and the activity regulated. The FSCS states plainly that it cannot accept claims for poor investment performance, so it does not cover losses from markets falling.

What changes from 6 April 2027

HM Treasury and HMRC published a policy paper on 17 September 2026. From 6 April 2027 the cash ISA limit falls to £12,000 a year for people under 65, while the overall ISA allowance stays at £20,000 and the stocks and shares limit is unchanged. People aged 65 or over keep a £20,000 cash limit. The paper also sets rules that affect stocks and shares ISAs. Interest on cash held inside a stocks and shares ISA will face a flat 22% charge, paid by the ISA manager to HMRC, and the Personal Savings Allowance will not apply. Transfers from a stocks and shares ISA into a cash ISA will not be permitted for under-65s. A portfolio made up entirely of cash-like assets is not allowed, and from April 2027 only Money Market Funds count as cash-like. Ordinary shares, funds, investment trusts, ETFs and bonds do not.

As an illustrative example, if £1,000 of cash held in a stocks and shares ISA earned 4% interest, that is £40, and 22% of £40 is £8.80. Regulations were still to be laid at the time of writing, so details may change.

Common mistakes and what to check

• Treating the wrapper as protection from falling prices. It shelters tax, not losses.
• Withdrawing money to move it, which can cost the tax-free status of that amount.
• Forgetting that the £20,000 is shared across all ISA types, so spending it on one leaves less for another.
• Assuming FSCS cover applies to investment losses. It does not.

Where to get free help

Free, impartial guidance on investing is available from MoneyHelper, and the Financial Conduct Authority keeps a register where you can check whether a firm is authorised. Be wary of unsolicited offers promising guaranteed returns. This guide does not recommend any provider or product, and it is general information rather than advice. A regulated financial adviser can give personal advice, usually for a fee.

Check before you act

Rules, rates and limits can change, so please confirm the current position on the official pages linked below before relying on anything here. This guide is general information, not personal advice.

Sources

• GOV.UK, Individual Savings Accounts (how ISAs work)
• GOV.UK, Transferring your ISA
• GOV.UK, Tax on dividends
• GOV.UK, Capital Gains Tax rates
• GOV.UK, Capital Gains Tax allowances
• HMRC, Cash ISA limit reduction (policy paper, 17 September 2026)
• GOV.UK, ISA reform 2027: anti-circumvention rules factsheet
• FSCS, Investments