Stocks and Shares ISAs: A Guide to What You Can and Can’t Hold

A Stocks and Shares ISA is a type of tax-efficient investment account that allows you to invest in a range of assets, including funds, investment trusts, bonds, and shares. Almost four million investors pay into these accounts each year, but have you ever stopped to think about exactly which investments are allowed inside? The taxman has a comprehensive list of what is a “qualifying investment” and can be held in a stocks and shares ISA. However, the rules can be fairly complicated, and can even catch out investors and ISA providers. To help you understand what you can and can’t hold in your ISA, we’ve put together a handy list of common investments that are allowed, and some that aren’t. Qualifying Investments
There are 20 “qualifying investments” for ISAs, according to HMRC. These include:
1. Shares of companies listed on recognised stock exchanges
2. Shares of companies listed on alternative investment markets
3. Funds and unit trusts
4. Investment trusts
5. Exchange traded funds (ETFs)
6. Corporate bonds
7. Gilts
8. Fractional shares
These are just a few examples of the types of investments that can be held in a stocks and shares ISA. Examples of Allowed Investments
* Shares: Company shares that are publicly listed on recognised stock exchanges anywhere in the world can usually be held within a stocks and shares ISA. This includes shares traded on the alternative investment market (AIM). * Funds: There are several types of investment funds that can be held in an ISA, including unit trusts and open-ended investment companies (OEICs). These can be passive or actively-managed. * Investment trusts: The HMRC list of approved ISA investments includes “shares and securities in qualifying investment trusts”. * Exchange traded funds (ETFs): ETFs are also allowed in stocks and shares ISAs. ETFs are listed on a stock exchange, so you can buy and sell them whenever the exchange is open. * Corporate bonds: Corporate bonds are permitted inside ISAs. A corporate bond is basically a way of lending money to a company. In return, it pays you a regular income in the form of interest for a set period of time (known as the “coupon”), after which it must repay your loan. * Gilts: Government securities like gilts are qualifying investments for stocks and shares ISAs. Governments issue bonds to raise money to finance big projects or for day-to-day operations; a bond issued by the UK government is called a “gilt”. * Fractional shares: Fractional interests of a whole share – known as fractional shares, for short – are allowed in ISAs, but make sure you follow the HMRC rules. Examples of Prohibited Investments
* Cryptocurrency: Cryptocurrencies such as Bitcoin cannot be held within a stocks and shares ISA. * Gold: Physical gold bars and gold coins cannot be held in an ISA. If you want to put the yellow metal in your ISA, consider buying a gold fund or ETF. * Alternative assets like fine wine and art: Alternative investments like fine wine, art and classic cars are not allowed within an ISA wrapper. * Property: You can’t hold direct property investments within a stocks and shares ISA. However, there are plenty of property funds and investment trusts that are eligible for an ISA portfolio, so you could consider buying those instead. * Unlisted shares: As we mentioned earlier, shares that aren’t publicly traded on a recognised stock exchange can’t be held within a stocks and shares ISA. This means shares in private companies are not allowed. What Happens if I Buy an Investment that Isn’t Allowed in a Stocks and Shares ISA?
The responsibility to ensure that only qualifying investments are held in a stocks and shares ISA falls on the ISA manager, rather than the investor. If a non-qualifying investment is held in the ISA, the ISA manager must remove it as soon as possible “or within 30 days where the investment has been received through some kind of corporate action eg. a rights issue”, according to Dave Beaston, technical manager at The Investing and Saving Alliance (TISA). Beaston explains: “So, for example, if an ISA manager offers some kind of ‘self-select’ internet-based ISA where ISA investors manage their own ISA and select their own investments, should the ISA client purchase a non-qualifying investment in their stocks & shares ISA, this would be treated as an ‘ISA manager error’.”
If a non-qualifying investment is held in the ISA, the ISA manager must remove it as soon as possible, and failure to do so can result in a financial penalty being charged to the ISA manager.