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How early should you use your ISA allowance?

We look at the benefit of opening your 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 lots of 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 has started. You can now shelter up to £20,000 in your ISAs 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, please 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 since Stocks and Shares ISAs launched in April 1999. One example is of someone investing on the first working day of the tax year, the other on the last working day.

There have been some difficult times for investors since ISAs first launched. The dot-com crash, the Iraq War, the financial crisis and more recently, the global pandemic.

Whichever option you took, you’d have done very well, with both returning over 99% growth, not including charges. But, you’d have been £7,795 better off overall by investing at the start of each tax year. There are no guarantees this pattern will continue and past performance isn’t a guide to the future.

And it’s impossible to predict how the stock market will perform over the next year. On 8 occasions since April 1999, an investment at the start of the tax year would have 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 on the first or last day of the tax year

Scroll across to see the full chart.

Past performance isn’t a guide to future returns. Source: Thompson Reuters Eikon 06/04/99 to 5/04/21. Includes 2020/21 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.

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 value 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.

FIND OUT MORE ABOUT INVESTING MONTHLY


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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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