Meeting your ISA subscription before the end of the tax year
If you have not used up your ISA allowance for the tax year 2017/18, you are running out of time to make the most of this opportunity.
The ISA allowance cannot be carried over once the end of the tax year is reached on April 5 so, if any of the £20,000 allowance you are entitled to for 2017/18 goes unused before then, it will be gone for good.
These tax-efficient wrappers can provide a significant boost when it comes to building up a decent nest egg, as returns are not subject to tax. Just as important as taking full advantage of the allowance is making sure it is used in the most effective manner. As the end of the tax year approaches, investors may be more prone to making snap decisions which are not in their best interests. This window of opportunity can be invaluable in planning how best to allocate your allowance.
Firstly, it is worth noting that you are not limited to simply one account. Savers will need to ask themselves: will my money work best for me in one account or spread across different types? There are four types of ISA: cash, stocks and shares, innovative finance, and lifetime. Every tax year you can put money into one of each type. There are benefits associated with each, such as the potential for an annual bonus for investing in a LISA. It is worth noting that low interest rates, together with the introduction of the personal savings allowance, has led to a recent drop in cash ISA subscriptions.
This would also be a good time to assess whether you are happy with your current provider or whether you could get a better deal elsewhere. You can transfer your account from one provider to another; to either the same or to a different type of ISA. You should make sure that you first check for any restrictions your provider may have on transferring ISAs and remember that they may also make you pay a charge.
Once you have established where your money will work best for you, the next logical step is to consider whether other existing investments or savings would better serve if they were held in an ISA.
If you do not have new capital which can be put towards your allowance, you might want to consider a ‘bed and ISA strategy’. This is where you use your annual capital gains tax allowance – currently £11,300 – to crystallise gains made on other unwrapped investments and reinvest the proceeds in an ISA wrapper. This is a good opportunity to use up another allowance you are entitled to that would otherwise be lost at the close of the tax year.
The later you leave your ISA subscription, the more you miss out on tax-efficient growth and compounding interest. You could additionally consider making regular payments into an ISA as opposed to depositing lump sums. This strategy is known as pound cost averaging and it offers investors a greater degree of protection from volatility as you won’t have full exposure to a market downturn.
Saving in an ISA is undoubtedly worthwhile given the tax advantages. The £20,000 allowance is a generous one and should be utilised to the full. Invest for the long term, review your choices regularly, and, where applicable, select investments which are compatible with your risk appetite and objectives.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.