Index tracker and ETF ISAs: how they work and what they cost

Can you hold an index tracker or ETF in an ISA?

Yes, if the fund is a qualifying investment and the ISA provider offers it. gov.uk says a Stocks and Shares ISA can include unit trusts and investment funds. HMRC’s June 2026 factsheet on the 2027 ISA changes names exchange-traded funds among the common investments held in Stocks and Shares ISAs, and says its list is illustrative and does not change the rules on which investments can be held.

Those rules are in HMRC’s guidance for ISA managers, which lists the qualifying investments. It does not name index trackers or ETFs, so whether a particular fund qualifies depends on how it is set up, as the section on qualifying funds below explains. Providers also differ in what they offer: the platforms we compare range from funds only to shares, funds and ETFs, and some offer only ready-made portfolios. The platform fee comparison lists their charges, and what a Stocks and Shares ISA is covers the basics.

Index tracker and ETF ISAs, at a glance

Tax on income and capital gains from investments inside an ISA

None

Nothing to declare on a tax return

ISA allowance, all your ISAs together

£20,000

A tax year, from 6 April to 5 April

Platforms we compare that list a per-trade charge for fund dealing

3 of 20

How a tracker fund is bought

Platforms we compare that list a per-trade charge for share dealing

6 of 20

How an ETF is usually bought

What is an index tracker?

An index tracker, or tracker fund, is a fund that aims to match the performance of a market index rather than beat it. The FCA calls this a ‘passive’ approach, and says the funds are called tracker funds because they track a stock market index. An index measures a market: the FCA’s example is an index of a country’s biggest traded companies. Funds that try to beat an index are called ‘active’. The FCA says the management charges of tracker funds are typically lower than those of active funds.

Tracking does not always mean owning every company in the index. Guidelines on ETFs and other UCITS issues from the European Securities and Markets Authority (ESMA), which the FCA publishes in its Handbook as reference material, expect the prospectus of an index-tracking UCITS (a type of regulated fund, explained below) to describe how the index is tracked, for example by full or sample-based physical replication or by synthetic replication. FCA guidance for UK UCITS funds says that where a fund aims for a result consistent with replicating an index, rather than an exact copy, its holdings need not match the index’s exact composition and weighting.

What is an ETF?

The FCA Handbook defines an exchange-traded fund as a fund with at least one class of units or shares that trades throughout the day on a trading venue, backed by a market maker that acts to keep the price on the venue from varying significantly from the fund’s net asset value (NAV), the value of its underlying holdings.

HMRC’s Stamp Taxes on Shares Manual says ETFs are typically index-based funds that track, wholly or in part, a stock market index. Not every ETF tracks an index: ESMA’s guidelines also define actively managed ETFs, where the manager has discretion over the portfolio and generally tries to outperform an index.

An ETF is bought and sold on an exchange, not from the fund manager. The guidelines set out a standard warning for ETFs whose units bought on the secondary market are generally not redeemable from the fund. The units cannot usually be sold directly back to the ETF, the investor must use an intermediary such as a stockbroker and may incur fees, and the investor may pay more than the current NAV when buying and receive less when selling.

How does a tracker fund differ from an ETF?

A tracker unit trust or open-ended investment company (OEIC) and an ETF can follow the same index. HMRC’s Stamp Taxes on Shares Manual says the main difference is that an ETF can be listed on a stock exchange and traded there in the same way as normal stocks and shares. It adds that OEIC shares will typically be priced once a day, whereas ETF shares are priced throughout market operating hours and can trade at a premium or a discount to the value of the holdings.

FCA rules generally require a fund manager to be willing to sell and redeem units during the dealing day, and require deals in units to be at a forward price, which the FCA Handbook defines as the price at the valuation point next following the manager’s agreement to sell or redeem. Each fund’s prospectus gives its regular valuation points.

How does the ISA wrapper change the tax?

gov.uk says you do not pay tax on income or capital gains from investments in an ISA, and that you do not need to declare them on a tax return. That covers a tracker or ETF held inside the ISA. The wrapper changes how income and gains are taxed, not how the fund performs, and it does not remove costs. An ISA saves tax only where tax would otherwise be due: how ISA tax works sets out the rules, and what a Stocks and Shares ISA is works through an example.

Which trackers and ETFs qualify?

HMRC’s guidance for ISA managers lists the investments that managers may hold in a Stocks and Shares ISA. In HMRC’s terms, the entries that matter most for trackers and ETFs are:

• units or shares in a UK UCITS
• units or shares in a qualifying non-UCITS retail scheme, if the scheme’s rules provide for redemption at least fortnightly
• units or shares in a recognised UCITS, and funds under the overseas fund regime (OFR) that HMRC lists as eligible
• shares issued by a company incorporated anywhere in the world that are officially listed on a recognised stock exchange, or admitted to trading on a recognised stock exchange in the UK or the European Economic Area (EEA)
• shares and securities in qualifying investment trusts

UCITS stands for undertakings for collective investment in transferable securities. The FCA Handbook defines a UK UCITS as an authorised unit trust, authorised contractual scheme or open-ended investment company that invests money raised from the public in transferable securities or other liquid financial assets, spreads risk, and has been authorised by the FCA as a UCITS. The definition treats action to keep an exchange price close to net asset value as equivalent to redeeming units, which allows for UK UCITS whose units trade on an exchange.

HMRC’s definition of a ‘company’ for the shares entry leaves out open-ended investment companies, UK UCITS, non-UCITS retail schemes and recognised UCITS, which have their own entries. HMRC’s list does not name ETFs, so which entry an ETF falls under, or whether it falls under one at all, depends on how it is set up. The fund’s documents or the ISA provider can say whether it qualifies. What an ISA can hold covers every ISA type.

What do tracker and ETF ISAs cost?

Costs come from the fund, the platform and the purchase itself. The FCA’s cost tables for firms (COBS 6 Annex 7R) separate the ongoing charges of a fund, such as management fees and service costs, from the costs of an investment service, which include platform fees, broker commissions, stamp duty, transactions tax and foreign exchange costs.

The fund’s ongoing charge. A fund deducts its running costs from its own value. The FCA’s 2014 review of fund charges describes the ongoing charges figure (OCF) as covering the fund’s annual management charge plus other running costs, such as keeping the register of investors, calculating unit prices and keeping the assets safe. From 8 June 2027 the FCA’s new rules for consumer composite investments replace the current key information documents with a product summary, which must show the ongoing costs figure (also called the OCF) as its headline cost, as a percentage and in pounds and pence. Transaction costs are not included in it. Until then a fund can publish either kind of document.

The platform’s fee. A platform charges to hold the ISA. Among the 20 Stocks and Shares ISA platforms we compare, the fee comes in three forms in our data: a percentage of the amount held (13 platforms), a flat annual fee (2) and no fee on a basic account (5).

Dealing charges. HMRC’s guidance for ISA managers says charges related to buying and selling ISA investments, such as dealing commission, stamp duty and a unit trust manager’s initial charge, must be met from funds within the ISA. Platforms list a fund dealing charge and a share dealing charge separately. A tracker fund is a fund, so the fund dealing charge applies. An ETF is dealt on an exchange like a share, so its dealing charge is usually the platform’s share dealing charge; the platform’s charges page says which applies.

The table counts the 20 platforms in our Stocks and Shares ISA comparison, checked on 29 September 2026. It shows what each platform lists, not what any one saver would pay: prices differ by plan, order size and how often someone trades. ‘Not offered’ means the account does not include that kind of dealing, for example a shares and ETFs account with no unit trusts or OEICs, or a managed portfolio account with no share dealing.

Stamp duty. gov.uk says you do not have to pay tax when you buy shares in an OEIC or units in a unit trust from the fund manager. HMRC’s manual says transfers of units in an ETF are exempt from stamp duty and Stamp Duty Reserve Tax (SDRT) where the ETF meets the definition in the Stamp Duty and Stamp Duty Reserve Tax (Exchange Traded Funds) (Exemption) Regulations 2014: an OEIC that is a UCITS and whose units are admitted to trading on a regulated market or a multilateral trading facility. Other ETFs follow the normal rules for OEIC shares or unit trust units. Buying individual company shares is different: see share dealing ISAs.

The gap between buying and selling prices. For an ETF, the standard warning says the investor may pay more than the current NAV when buying and receive less when selling.

Our Stocks and Shares ISA calculator shows growth after fees at illustrative rates, which are examples, not forecasts.

What is tracking difference?

A tracker aims to match its index, but its return can differ from the index’s. ESMA’s guidelines on ETFs and other UCITS issues define annual tracking difference as the difference between the annual return of an index-tracking UCITS and the annual return of the tracked index. They define tracking error as the volatility of that difference.

The guidelines expect the prospectus of an index-tracking UCITS to give the anticipated level of tracking error in normal market conditions, and to describe factors likely to affect its ability to track, such as transaction costs, small illiquid components and dividend reinvestment. They also expect the fund’s annual report to state the tracking error at the end of the period and to disclose and explain the annual tracking difference. Tracking difference, and the tracking error reported in an annual report, describe a past period and are not a guide to the future.

What is a global tracker?

A global tracker is a tracker fund or ETF that follows an index of companies from many countries. The FCA says some funds invest in the shares of a single country’s stock market while others buy a mix of shares in companies across the world, and that funds can invest in specific countries, across whole regions or globally.

Currency. Where a fund’s underlying asset is in a different currency to pounds sterling, the FCA’s rules for product summaries (DISC 7.1.5R) require an explanation of this and a warning that performance may be affected by currency fluctuations. So a global tracker’s performance can be affected by exchange rates as well as by share prices.

Spread of risk. The FCA says spreading money across different markets can reduce risk and help smooth out returns over time, but that diversification cannot totally eliminate risks.

Funds set up overseas. Whether a fund set up outside the UK qualifies depends on HMRC’s list, which includes recognised UCITS and funds recognised under the overseas fund regime. HMRC describes the overseas fund regime as the route to FCA recognition for overseas funds that want to market to retail investors in the UK.

Costs. Platforms can charge a foreign exchange fee on trades in a currency other than pounds sterling, and the FCA includes foreign exchange costs among the transaction costs a firm discloses. See share dealing ISAs for how the platforms we compare list foreign exchange fees.

What are the risks?

The value of investments can fall as well as rise, and you may get back less than you put in. Past performance is not a reliable guide to the future. The ISA changes how investments are taxed, not how they perform, and charges reduce returns.

• The index can fall. A tracker aims to match its index, so its value is expected to follow the index down as well as up. The FCA says funds that invest in shares cannot offer performance guarantees.
• Tracking difference. A fund’s return can differ from its index’s.
• Currency. A global tracker’s performance may be affected by currency fluctuations.
• Weight in single companies. A tracker holds what its index holds. FCA rules limit most UK UCITS funds to 5% of their value in securities issued by any single body, raised to 10% for up to 40% of the fund. A UK UCITS whose policy is to replicate an index that meets the FCA’s tests for relevant indices, including that its composition is sufficiently diversified, can hold up to 20% in shares and debentures issued by the same body, and up to 35% for one body in exceptional market conditions. So a company’s weight in a tracker follows its weight in the index.
• ETF prices. An ETF’s exchange price can sit at a premium or a discount to the value of its holdings, and the standard warning says the investor may pay more than the NAV when buying and receive less when selling.
• Charges. The FCA says charges can drag on investment returns over time.

Do the planned 2027 rules affect trackers and ETFs?

HMRC had planned a 22% charge from 6 April 2027 on interest on cash held inside a Stocks and Shares ISA, and a rule that money market funds would be the only cash-like holdings. The Budget documents of 28 October 2026 do not mention them and press reports say they are not going ahead as planned, so they are unconfirmed. HMRC’s factsheet lists funds and exchange-traded funds among the common Stocks and Shares ISA investments that would not be treated as cash-like. See cash inside a Stocks and Shares ISA.

How do you open one?

You open a Stocks and Shares ISA with an ISA provider, and the range of funds and ETFs it offers is the provider’s own. Our guide to how to open an ISA covers who can open one and what a provider asks for. The overall ISA allowance is £20,000 a tax year across all your ISAs. This page does not name or recommend any provider, platform or fund.