Stocks and shares ISA vs share dealing account: differences explained

What is a stocks and shares ISA?

An ISA – or Individual Savings Account – is a popular saving or investing vehicle that offers extremely advantageous tax benefits. You can save a total of up to £20,000 per tax year from your net income across multiple ISAs, and returns are free of income tax, capital gains tax or dividend tax.

It's important to note that unlike a SIPP, your ISA allowance functions on a 'use it or lose it' basis, with your allowance resetting at the beginning of the new tax year.¹

There are four key types of ISAs, each with their own set of advantages and drawbacks. The focus of this article is the stocks and shares ISA, which allows you to invest in shares, bonds and investment funds completely free from capital gains or dividend tax.

As with all investing, returns are not guaranteed, and you may get back less than what you put in. However, equities have historically outperformed cash over the longer term.

ISA savings are usually covered by the FSCS protection scheme up to £85,000 per person per banking licence. Many investors choose to hold accounts with multiple providers to obtain the maximum possible protection if they go over this limit.

You pay zero commission on US shares and just £3 on UK shares if you trade three times in the previous month with us. We offer flexible ISAs, meaning you can withdraw funds without reducing your £20,000 account deposit limit. Opening the account is free, and you pay no transfer or exit fees. You can choose from over 13,000 global stocks and ETFs with an FX conversion fee of just 0.5%.

The other three ISA types are:

1. Cash ISA – regarded as 'low risk' as the savings interest is tax-free and the initial capital is protected. However, if the interest rate is lower than inflation, the value of your cash will fall in real terms over time
2. Lifetime ISA (LISA) – you can save up to £4,000 per year in a LISA, which is then topped up by 25% by the government, up to £1,000 per year until you turn 50. The money must be used either to buy your first home or can be withdrawn at the age of 60. There are strict age requirements and early withdrawal charges
3. Innovative Finance ISA (IFSA) – a complex product that includes peer-to-peer loans or buying up business debt. These are high risk products often not covered by FSCS protection

What is a share dealing account?

A share dealing account – or General Investment Account – is an account which allows you to hold shares outside of tax wrappers like SIPPs. There is no limit to how many shares or how much money you can invest in a share dealing account with us, which makes them ideal for investors who have already maximised their annual ISA allowance.

There are no restrictions on when you may buy or sell shares, or deposit or withdraw your money. You can invest in a wide range of shares, investment trusts, ETFs and funds with us.

Any dividends received within your share dealing account that exceed the £1,000 dividend allowance is subject to dividend tax. This is currently set at 8.75% for basic rate taxpayers, 33.75% for higher ratepayers, and 39.35% for additional ratepayers. Importantly, your dividends are subject to tax regardless of whether you reinvest them.

If you make a capital gain as a result of selling shares for a profit, then all gains over your capital gains tax allowance are taxed. The capital gains tax rate is set at 10% for basic ratepayers and 20% for higher and additional ratepayers. The allowance is currently set at £6,000, but this will reduce to £3,000 in the 2024/25 tax year.

It takes just minutes to open your account, and our prices are offered in local denominations. We offer dedicated 24-hour weekday support, and a huge choice of over 13,000 companies, ETFs, and investment trusts. Our competitive dealing costs include zero commission on US shares and just £3 on UK shares, if you trade three times in the previous month.

Uniquely, we offer out-of-hours US share dealing for a number of equities while the market is closed. This is a service not offered by any of our competitors.

Stocks and shares ISA vs share dealing account

There are many similarities between our Stocks and Shares ISA and our share dealing account. Most importantly, both:

• Are commission free for US shares, while UK shares cost just £3 when you place more than three trades in the previous month
• Offer no commission on IPOs with either account
• Give you the ability to apply by post, add US stocks and transfer existing assets
• Allow you to transfer a share dealing portfolio or ISA held with other brokers to us with no charges for electronic shares
• Rely on companies held to deliver returns, and this is not guaranteed even with the most conservative portfolio
• Give you the same excellent customer service regardless of which account type you choose

However, there are several important distinctions:

• Capital gains, dividends and interest held in a share dealing account are taxed. You can invest £20,000 per year into your ISA where all profits are tax free
• The ISA has a hard annual deposit limit of £20,000 per year, while there is no limit to your share dealing account
• As you have to pay tax on share dealing account profits, you need to consider tax planning. This is particularly important for self-employed investors who may already pay themselves with dividends from their own company³
• When you open an ISA with us, you can take your money out at any time – but not all ISAs are made equal. We offer flexible ISAs, which allow you to withdraw money without affecting your allowance, meaning you can redeposit at a later time
• ISAs are generally more restrictive, even though we offer flexible ISAs. Share dealing accounts are taxed but more flexible

Benefits of a stocks and shares ISA over a share dealing account

1. The most important benefit of a stocks and shares ISA is the tax efficiency – you can invest £20,000 per year and all capital gains and dividends are tax free
2. An underappreciated advantage of tax-free returns is that you see a larger compounding effect, making an ISA particularly suitable for long-term investments
3. Self-employed investors operating through a limited company can generate returns within an ISA and also take dividends from their own company in a tax-efficient manner
4. Some shares, including many FTSE AIM shares, are free from inheritance tax when held within an ISA. There are complex rules on which investments qualify
5. As the annual ISA limit has only risen over time while taxes due in a share dealing account have also risen, the ISA has become ever more advantageous
6. ISAs are extremely generous by international standards, given their tax-efficiency and flexibility. In most other countries, you can pick one benefit or the other

How to set up your share dealing account and share dealing ISA with us

1. If you are new to IG, first create a General Investment Dealing Account (share dealing account)
2. Click 'create account' and open an IG share dealing account
3. Log in to the My IG dashboard
4. Click 'add another account', then select 'add ISA'
5. Select your opportunity
6. Choose your position size and manage your risk

We'll help you find an IG ISA that's right for your risk profile. If you like what you see, you can activate it in moments.

You can either select your own investments in a share dealing ISA, or you can let our experts make the decisions on your behalf with an IG Smart Portfolio ISA.

You can also try out our free demo account.

Stocks and shares ISA vs share dealing account summed-up

• Our stocks and shares ISA allows you to invest up to £20,000 per year from your net income into shares, bonds and investment funds completely free of capital gains or dividend tax
• Our share dealing account – or General Investment Account – allows you to hold shares outside of tax wrappers like SIPPs. There is no limit to how many shares or how much money you can invest in a share dealing account with us
• Your ISA has a hard annual deposit limit of £20,000 per year, while there is no limit to your share dealing account
• An underappreciated advantage of tax-free returns makes a larger compounding effect, meaning an ISA is particularly suitable for long-term investments

¹ Individual Savings Accounts (ISAs): Overview | GOV.UK
² Getting Ready To Invest | The Motley Fool UK
³ UK dividend tax rates and dividend allowances | Money Donut