9th April 2019

One tax year ends – and a new opportunity awaits those early ISA investors.

RNS Independent Financial Advisers’ partner Andrew Clayton said: “In our experience, most ISA investments take place at the end of the tax year.   But if you are able, there is a strong case for investing early, at the start of a tax year.”

In this new tax year, the ISA limit is £20,000 for individuals and £40,000 for couples.

Your ISA allowance – free from income and capital gains taxes – can be split in any way you like across a Stocks and Shares ISA, Cash ISA, Lifetime ISA (maximum of £4,000) and an Innovative Finance ISA. You just need to stay within the overall limit.

The allowance is £4,368 for Junior ISAs.

Andrew said: “By investing at the start of each tax year, there is a greater chance of building up a bigger lump sum than waiting until the last minute.”

He pointed to fund manager Fidelity International which has compared how two investors would have fared over the past 10 years to April, 2018, if one invested on the first day of each tax year and the other on the last.

The first investor, who put their full ISA allowance into the FTSA all-share index on day one of each tax year, would have seen their investment of £123,560 grow to £180,298.

The second, who put the same amount into the index on day 364, would have seen the investment grow to £170,128. In other words, there was a difference of £10,170.

“The illustration demonstrates the earlier the ISA investment in a tax year, the better,” said Andrew.

“If markets rise throughout the financial year, those who invest earlier will have got in at a lower level and they will also have the benefits of extra dividends on that investment, paid free of income tax within an ISA.”

An alternative to putting in a lump sum would be to make monthly investments into an ISA.

Fidelity calculated those who followed this route, with regular monthly savings over the past 10 years, would have seen their investment rise to £176,962.

Andrew said clients needed to remember that investments could go down in value as well as grow.

“Ideally, ISAs should be part of an investment portfolio. Decisions will be made on attitude to risk and time frames.

“But it’s a good idea to use as much of the ISA allowance as you can, because that way you’ll be making the most of the ISA tax break for your money.

“Those unsure or who would like more advice should give the team a call.”