Investing your ISA allowance early in the tax year can prove rewarding over the long term.
What is the ISA allowance?
We are now in a new tax year which means you get £20,000 allowance in the 2020/21 tax year to invest in your ISA.
The traditional last-minute dash again saw UK savers rush to beat the tax year-end deadline to invest their ISA allowance. And having done so, many will do the same thing as next April approaches.
Human nature dictates that we are often only prompted to act when faced with a deadline, particularly when it’s a ‘use it or lose it’ opportunity such as the annual ISA allowance. But there are many reasons why it makes sense to invest in an ISA earlier in the tax year instead.
Perhaps most obvious is the peace of mind that comes from getting ahead with your ISA planning and avoiding any end-of-year panic. It also makes things simpler, as you don’t need to worry about any more tax returns for your investments once they’re held inside an ISA.
However, what’s most important is to remember that investing is a long-term game; the longer you leave your money invested, the greater the chance of achieving better returns. Investing your ISA allowance at the start of the tax year gives your money the opportunity to grow for up to an extra 12 months.
Of course, you are not guaranteed to do better by investing earlier, but by doing so you can get your money working harder for longer in two ways.
What are the benefits of using my ISA allowance early?
The sooner you use your ISA allowance, the greater the potential tax benefit because your investment is sheltered from Capital Gains Tax and Income Tax for longer.
Similarly, your investment has more chance to benefit from compound interest – what Albert Einstein reportedly referred to as the ‘eighth wonder of the world’. Over the long term, the opportunity to make gains on the gains you have already made can make a big difference to your future wealth.
Find out more about investment planning
Tax-efficient investment planning
Taking steps to minimise the impact of tax on your wealth should be a year-round activity, not something that we only think about in the last few weeks of the tax year. Whether through investing a lump sum or by setting up regular savings, making an early start with your ISA plans is one way to shelter more of your money from HMRC.
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Book a no-obligation financial review meeting today
To discuss utilising your ISA allowance or tax-efficient investment management, please contact us on 0117 973 0500 to book in a no-obligation telephone financial review meeting with one of our Financial Advisers.
