What is a stocks and shares ISA?
Answered 11 March 2026
What is a Stocks and Shares ISA?
What the law says
The Individual Savings Account (ISA) regime is governed by the ISA Regulations (SI 1998/1870), made under the powers in Chapter 3 of Part 6 of ITTOIA 2005, which provide for exemptions for certain investments.
Provided certain conditions are satisfied, qualifying investments held in an ISA are exempt from both Income Tax and Capital Gains Tax.
HMRC guidance / practice
A stocks and shares ISA is one of the two components of an ISA (the other being cash). Key features include:
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What it is: An ISA is a tax-free annual investment product for personal investors, allowing a limited annual amount to be contributed to an investment account. Income from an ISA is exempt from Income Tax.
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Eligible investments: Only shares listed on a recognised stock exchange may generally be held, although from August 2013 this was relaxed to permit shares traded on a wider range of markets.
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Insurance policies: Since 6 April 2005, life insurance policies can also be held within the stocks and shares ISA (provided certain conditions are met), following the abolition of the separate insurance ISA component. An insurance policy falls in the stocks and shares component (rather than the cash component) if the investor is exposed to a significant risk of loss exceeding 5% of the value of the investment in the first five years.
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History: The stocks and shares ISA replaced Personal Equity Plans (PEPs) in April 1999. From 6 April 2008, all remaining PEPs were reclassified as stocks and shares ISAs.
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Tax treatment for investors: Investors pay no tax on income or capital gains from their ISA savings and investments, and do not need to declare them to HMRC.
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Share transfers into ISA: Employees may transfer shares directly from a Share Incentive Plan or following the exercise of a share option into a stocks and shares ISA without Capital Gains Tax consequences, provided the transfer is made within 90 days.
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Junior ISA: A stocks and shares Junior ISA is also available as a long-term, tax-free savings account for children.
Citation sources
An ISA is a tax-free annual investment product and was launched on 6 April 1999 to replace the Personal Equity Plan and the Tax Exempt Special Savings Account (TESSA). When launched, it was made up of three ‘components’ - cash, insurance, or stocks and shares and could be a mix of these components. An ISA comprising of one component only was called a ‘mini’ ISA, whilst an ISA allowing for more than one component was referred to as a ‘maxi’ ISA. From 6 April 2005, the ISA structure was changed. T
The separate insurance Individual Savings Account (ISA) was abolished on 5 April 2005. Since 6 April 2005, provided certain conditions are met, life insurance policies can be held within the stocks and shares ISA, or, since 6 April 2017, within the Lifetime ISA. There is detailed information on ISAs in the ‘ISA managers’ guidance’ published on gov.uk. Insurers can find the guidance useful to check if a life insurance policy can be included in an investor’s ISA. The ISA Regulations themselves are
In accordance with the ISA Regulations, if an employee exercises an option and acquires shares, he or she may transfer them directly to a stocks and shares Individual Savings Account (ISA) without any Capital Gains Tax consequences. The value of the shares transferred counts towards, and may be restricted by, the ISA limit for the year of transfer and must be made within 90 days of the date the employee exercises the option.
Probably the most common type of exemption from tax on interest is where the income arises in an individual investment plan. Chapter 3 of Part 6 of ITTOIA05 contains the powers for the Treasury to make regulations for exemptions for certain investments. Two sets of regulations have been made under ITTOIA. Personal Equity Plans (PEPs) (SI469/1989). Individual Savings Accounts (ISAs) (SI1870/1998). Similar powers are provided by The Child Trust Fund Act 2004 under which the following regulations h
TCGA92/S151 The Personal Equity Plan (PEP) was introduced with effect from 1 January 1987 to encourage wider share ownership. No new subscriptions may be made to a PEP after 5 April 1999. The Individual Savings Account (ISA) succeeds the PEP and subscriptions may be made to an ISA from 6 April 1999 onwards. Provided certain conditions are satisfied qualifying investments held in a PEP and in an ISA are exempt from Income Tax and Capital Gains Tax. Additional guidance is available in SAIM 2310 In
An Individual Savings Account (ISA) is a financial product for personal investors to contribute a limited annual amount to an investment account. Income from an ISA is exempt from Income Tax. Only shares listed on a recognised stock exchange may be held in an ISA, although this was relaxed somewhat in August 2013 when it was permitted to hold shares traded on a wider range of markets in a stocks and shares ISA. If the deceased held any shares in an ISA, the taxpayer will include them on the IHT4
Junior ISAs are long term, tax-free savings accounts for children, and have now taken over from the Child Trust Fund (CTF). There are two types: a cash ISA, and a stocks and shares ISA These follow the VAT liability shown above for these types of ISA.
This is defined at FA12/S60 by reference to ITTOIA05/S695 (1). A friendly society may write ISA business. Until 2005 it was limited, like insurance companies, to policies with premiums not exceeding £1000 per year per ISA. This is additional to the exempt life or endowment business exemption of £270 per year. The separate insurance component of an ISA was abolished from 6 April 2005. From that date, an insurance policy falls either in the stocks and shares component or the cash component of the
In accordance with the ISA Regulations an employee may transfer shares directly from a Share Incentive Plan to a stocks and shares Individual Savings Account (ISA) without any Capital Gains Tax consequences. The value of the shares transferred counts towards, and may be restricted by, the ISA limit for the year of transfer. The transfer must be made within 90 days of the shares ceasing to be subject to the plan.