Should you invest through a Stocks and Shares ISA?

In July 2025, Chancellor of the Exchequer Rachel Reeves shelved plans to reduce the tax-efficient allowance for Cash ISAs.

In 2022/23, savers paid just £28 billion into Stocks and Shares ISAs, compared with £41.6 billion paid into Cash ISAs, MoneyWeek reports. Reeves had hoped to divert more of the nation’s savings into the stock market.

But some savers may already be starting to see the appeal of growing their wealth through investing. With the Bank of England (BoE) reducing the base rate to 4% in August 2025, and holding it at the same level in September 2025, the opportunity to boost your savings with interest could be diminishing.

Read on to learn more about how Stocks and Shares ISAs could help grow your wealth, and how they compare to other ISA and investment options.

Stocks and Shares ISAs can offer a tax-efficient wrapper for investors

A Stocks and Shares ISA is a type of investment account that allows you to invest without paying tax on your returns. This means your returns are free from:

• Dividend Tax
• Income Tax
• Capital Gains Tax (CGT)

You can choose from a range of ISAs offered by multiple providers, and invest your money into assets such as:

• Shares
• Bonds
• Funds

You can pay in up to £20,000 a year tax-free across all adult ISAs, including Cash ISAs and Lifetime ISAs (LISAs) – with the latter having an individual limit of £4,000 a year and additional restrictions, such as age. Allowances reset annually and unused amounts can’t be carried forward.

There’s no cap on your returns or total ISA value

There are no restrictions on the total value of your Stocks and Shares ISA or returns gained through your investments.

In fact, Aberdeen PLC reports that over 4,000 investors have in excess of £1 million in their Stocks and Shares ISAs, with the top 50 ISA investors boasting an average pot of £8.5 million.

Evidently, Stocks and Shares ISAs have the potential to deliver significant returns. Of course, investment prices are known to fluctuate and losses are possible.

Nevertheless, by investing for the long-term using a Stocks and Shares ISA, you could potentially grow your wealth more substantially than through saving alone.

Research published by MoneyAge found that someone making full use of their tax-free allowance every year since 1999 would be £134,000 better off investing in a Stocks and Shares ISA versus a Cash ISA.

ISAs can offer tax advantages over General Investment Accounts

When looking to invest for your future, it can be hard to know what kind of account to use. You can either invest through a Stocks and Shares ISA, a General Investment Account (GIA) – also known as a dealing account – or a combination of the two.

GIAs usually offer access to the same investments as ISAs, depending on the platform.

The primary difference is the tax treatment. You won’t be taxed on investment returns generated within an ISA. Meanwhile, in 2025/26, gains through a GIA account could be liable for:

• CGT, if you make gains over the £3,000 Annual Exempt Amount
• Dividend Tax, if you earn more than the £500 Dividend Allowance.

Additionally, interest payments on cash, cash derivatives, or bonds held in a GIA could also be subject to Income Tax if you exceed the following allowances within the 2025/26 tax year:

• Personal Allowance – £12,570, or lower if you earn over £100,000.

• Starting Rate Band – £5,000 (this allowance reduces once your earned income falls above the personal allowance)

• Personal Savings Allowance – £1,000, £500, or £0 for basic-, higher- and additional-rate taxpayers respectively.

For instance, if you earned more than your Personal Allowance in one year and generated £700 interest as a higher-rate taxpayer, a portion of your interest payments could be subject to Income Tax.

The upside is that there’s no limit on how much you can invest annually through a GIA. So, it might be worth considering one if you have used up your annual ISA allowance.

Consider the benefits of other ISAs for your circumstances

Whilst Stocks and Shares ISAs may have the potential to offer strong long-term returns, that doesn’t necessarily mean they’re right for your circumstances.

Returns are not guaranteed, meaning it’s possible to end up with less money than you paid in. And with positive gains more likely for long-term investments, it’s not always wise to access your money for unexpected expenses.

There are two other primary types of adult ISA available, each with their own benefits and limitations.

Cash ISA

With Cash ISAs, you can grow your savings with either fixed or variable interest rates, without needing to pay tax on the interest you earn for savings up to the tax-free allowance. They’re often deemed a safer option than investing, as you’ll generally get out at least as much money as you pay in.

Some accounts will limit when you can withdraw money from your Cash ISA, whilst others offer more flexibility. They’re commonly used to save for short-term, large expenses such as a wedding or a new car, or can be used for an emergency fund.

Lifetime ISA

If you’re saving for your first home or retirement, Cash LISAs and Stocks and Shares LISAs can be a great way to grow your savings. Contributions are topped up by an additional 25% for savings up to £4,000 a year, meaning you could get a maximum of £1,000 from the Government each year.

Whilst these accounts can provide a significant boost to your savings, they have limitations. You must be under the age of 40 to open an account, and you can only pay in until age 50.

Crucially, if you withdraw your funds for any purchases other than a first home or before you’re 60, you could be charged more in withdrawal fees than you received as a Government bonus – meaning you could end up with less money than you paid in.

Depending on your circumstances and goals, a mix of ISA types may work best. A Financial Planner can help you find the right balance.

Get in touch

At PenLife, our Financial Planners can help you manage your finances and grow your wealth. Whether you’re already a client or looking to get started with financial planning, email us at enquiries@pen-life.co.uk or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.