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How early should you use your ISA allowance?

We look at the potential benefit of opening a Stocks and Shares ISA now, rather than later.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

A Stocks and Shares ISA has become the core of many investors’ portfolios. It’s a simple way to invest for your long-term future, free of UK income and capital gains tax.

The new tax year started on 6 April. You can now shelter up to £20,000 in your ISA before 5 April next year. This raises the same question every year – should you use your allowance early, wait until the end of the tax year, or spread it throughout the year?

This article isn’t personal advice. If you're not sure what’s right for your circumstances, ask for financial advice. Tax rules can change, and the benefits depend on your personal circumstances.

Do early ISAs trump last minute ISAs?

We’ve looked at the return from investing £5,000 each tax year in the UK stock market by 2 different methods since Stocks and Shares ISAs launched in April 1999. One invests on the first working day of the tax year, the other on the last working day. The same £115,000 has been invested over that time for both.

There have been some difficult times for investors since the ISA’s launch. The dot-com crash, the Iraq War, the financial crisis and more recently, the global pandemic. Both methods would have done very well, with both returning over 115% growth, not including charges.

But investing at the start of the tax year would’ve ended up over £10,000 better off overall. There are no guarantees this will continue and past performance isn’t a guide to the future.

On eight occasions, an investment at the start of the tax year would’ve fallen in value by the end of that same tax year. This shows it’s not a one-way street. Investments can rise and fall in value and you could get back less than you invest.

Investing £5,000 on the first vs. last day of the tax year

Scroll across to see the full chart.

Past performance isn’t a guide to future returns. Source: Lipper IM, 06/04/99 to 28/03/22. Includes 2021/22 tax year subscriptions for both.

FIND OUT MORE ABOUT THE HL STOCKS AND SHARES ISA

Spread your ISA over the course of the year

With HL, you can take advantage of your ISA allowance without doing it in one go. You can spread your investment over the year by investing on a monthly basis via direct debit.

This is great for people who want to invest, but don’t have lump sums of cash available. You can start a Direct Debit with as little as £25 a month.

It’s also an option if you’re not sure whether now’s the best time to invest. Investing on a monthly basis gets rid of some of the emotional barriers to investing. And it spreads the cost of your investment, removing some risk if markets fall in the short term. Your regular investment could even buy more of the same investment if the market falls, but the reverse is true if markets rise. Like all investing ultimately you could still get back less than you invest.

FIND OUT MORE ABOUT INVESTING BY DIRECT DEBIT

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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