What is a Stocks and Shares ISA and Why Invest in One?

A Stocks and Shares ISA (Individual Savings Account) is what is known as a "tax wrapper". It acts as a shield between your money and the tax man - unless you let your money out the tax man can't get at it. This means that you can escape capital gains tax and most of the tax on dividends (10% is deducted at source).  This can seriously boost your investment performance.

Within an ISA you can invest in various different asset classes and build your wealth effectively over time.

Why Invest Within an ISA?

Frankly until you've used up your ISA allowance there is no excuse for investing anywhere else (with the possible exception of VCT's or Enterprise Investment Schemes). If you own shares outside of an ISA and you haven't used up your allowance then you should definitely consider a Bed and ISA (a simple way to transfer them in).

The top three benefits of using an ISA are:

1. No capital gains tax to pay
2. Lower taxes on dividends 
3. No need to declare holdings or income on your tax return. 

The benefits of investing without having to worry about tax are significant. Say you invested £10,000 for 20 years which didn't pay a dividend but returned an average of 10% per year compounding. At the end of that period you could sell it for: 

• £67,250 in an ISA 
• Up to 59,060* 

So using an ISA has saved you at least £8,000 which I think is justification enough for their importance. However, you can't claim losses on investments in an ISA as a tax loss. 

*Assuming you use your full allowance are and on the 18% CGT rate (2013-2014 tax year).