6 April marked the beginning of the 2018/19 tax year and the arrival of your new allowances for ISA and pension contributions. Here are four reasons you should start using the new allowances as soon as possible.
Published on 19 Apr 20184 minute read
Using your allowances earlier in the tax year means your money is invested for longer, and has more chance to work hard for you. This could make a huge difference to your returns over the long term.
As an example, let’s consider two people who invested their full ISA allowance in global equities in each of the last 10 tax years*. The first person made their contribution on the first day of each tax year, the second waited until the final day.
The early investor received £18,999 more for their money, just by making their ISA contributions early in the tax year.
After 10 years, the first person would have contributed a total of £123,560 which would have grown to £219,963 – that’s a total return of £96,403 or 78%. The second person would have paid in the same amount of money, but their investment would have grown to £200,964 – a total return of £77,404 or 63%. This means that the first person received £18,999 more for their money, just by making their ISA contributions early in the tax year.
ISAs and pensions are so great because they come with generous tax benefits. Investments in both accounts grow free from Income Tax and Capital Gains Tax, and the Government also tops up your pension contributions by 20-45% (up to your annual allowance). So the longer your investments are held in your ISA or pension, the more tax you could be saving.
Like many people, you may have rushed to make the most of your allowances in the last few weeks of the 2017/18 tax year – a situation that is stressful for even the most laid back among us. Here at Bestinvest, we received our last ISA contribution at 11:58pm on 5 April!
But if you start paying into your ISA and pension today, you’ll be able to relax and enjoy yourself when this tax year comes to an end, rather than worrying about where to invest or whether or not your money will make it into your account in time.
If you wait until the last minute to use your allowances, you also risk not being able to afford the contributions that you want to make. After all, your other financial commitments don’t stop just because the tax year is ending. But if you start paying into your ISA and pension today, you can spread out your contributions and avoid facing a shortfall next April.
For more information on your tax allowances or Bestinvest’s ISA or SIPP, please call us on 020 7189 9999 or email email@example.com.
*Based on the performance of the MSCI World index, data to 5/4/2018. Source: Lipper. The figures do not include ISA account charges, which will vary between providers. What you will get back depends on how your investment grows and the tax treatment of the investment, and past performance is not an indicator of future performance. Please also read the important information below.