5 reasons to start an ISA early this tax year

Early birds can duck the tax trap lying in wait this tax year, sheltering more of their investments from the taxman since key allowances halved overnight last Wednesday. It’s a compelling reason to get cracking opening an ISA as early as possible in the tax year, but it’s not the only one.

It’s not just the early birds that flock to ISAs at this time of year, we also see double-dippers, who squeezed in before the end of the tax year and are committed to getting ahead of the game this time round.

Then there are the regulars, who are keen to get the best possible chance of exploiting as much of their ISA allowance as they can afford over the tax year. They take the whole notion of trying to time the market out of the equation.

For all of them, starting early is incredibly valuable – here are five benefits to starting early.

This article isn't personal advice. As with all investment decisions, it’s important to consider your goals and personal situation. These can impact what options to choose and the tax benefits you might get. Tax rules can and do change. If you’re not sure if investing in an ISA is right for you, ask for financial advice.

Five benefits of being an early bird

1. By investing early, you get an extra year of shelter from tax. If you hold investments outside an ISA, you run the risk of paying tax on dividends far earlier in the year – that’s because the dividend tax allowance has been halved this tax year to £1,000.

   If you hold shares, by switching them into an ISA using our share exchange service, they’re sheltered from this tax immediately.

   Bear in mind though, selling investments to move them into an ISA could trigger a capital gain, which you could have to pay tax on.

   MORE ON SHARE EXCHANGE





2. Likewise, the slashing of the capital gains tax allowance to £6,000 means investors planning to realise larger gains this tax year risk busting their allowance.

   Selling and rebuying in an ISA as early as you can gives you the freedom to sell what you want when it makes the most sense for your finances, without having to think about tax.

   Five share ideas for an ISA




3. Starting early gives you the opportunity to set up regular monthly payments into a Stocks and Shares ISA every month, and automatically spread your investments across the whole tax year.

   By drip feeding your money into the stock market, you’ll take advantage of smoothing out ups and downs in value, through what’s known as pound cost averaging.

   If you invest a fixed sum every month, you’ll be able to buy more units when an investment’s price falls, providing the potential for greater profits if they then rise. The reverse is also true though, you’ll buy less if prices rise.

   Explore regular investing





4. Making an early start on regular investing also gives you a chance to build as much as possible in your ISA during the tax year.

   Fledgling investors can set up regular payments of as little as £25 a month. This gives you the best possible chance of building as much of a nest egg as you can afford by the end of the tax year.

   Discover which funds HL ISA and SIPP investors bought during the 2022/23 tax year





5. The earlier you start, the longer your money will be invested for. The old adage holds true that it’s time in the market that makes the real difference to investment growth – rather than timing the markets.

   Starting as early as you can gives you the longest possible time to grow your investments.

   Explore the Stocks and Shares ISA

Investments go up and down in value which means you can make a profit but it also means you can get back less than you originally put in.

Looking for investment ideas this tax year?

We’ve provided a mix of funds which you could consider for your ISA and pension allowances this tax year.

See our latest investment ideas

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