The new ISA allowance – 4,760 more reasons to choose an ISA this tax year
The Government introduced Individual Savings Accounts (ISAs) in 1999. Back then, the annual allowance was just £7,000 for stocks and shares ISAs (and a paltry £3,000 for cash ISAs). Fast-forward 18 years and you now have a whopping £20,000 ISA allowance that you can use to save tax-free – a generous £4,760 increase from last year’s ISA allowance, meaning there’s all the more reason to make the most of it.
Using your ISA allowance – a no-brainer
Even just four years ago, the ISA allowance was only £11,520. As an incentive to get people to save, the Government has gradually increased the allowance to its current bumper level.
It’s easy to make the most of your ISA allowance, because using an ISA is one of the simplest ways to save. The interest you make on cash savings or the gains from investments are free from Income Tax and Capital Gains Tax. What’s more, over time your savings will benefit from compounding as your earnings generate more earnings – a snowballing effect. The earlier you start, the better, because your savings have more time to grow tax-free, which has a big effect on your earnings over time.
Why be an ISA early bird?
An estimated 45% of Bestinvest clients invested in the last three days of the tax year, a time that’s commonly referred to as ISA season. On our online service, the final subscription for an ISA took place at 11.56pm, with only four minutes to spare before the allowance disappeared for good. In contrast, around 27% were ‘early birds’ who began investing in April 2016.
But when you look at the data, the FTSE All Share Index has delivered a positive return in 14 of the last 20 years (April to end of March). This means that statistically, the odds are that the earlier you invest in the new tax year, the better. In the case of an ISA, there is a whole year of potential returns to be had – and less tax paid potentially too.
Take timing out of the equation
Another option is to take the timing out of the process altogether by investing on a regular basis. Investing regularly takes the emotion out of investing. It’s all too easy to have your investment decisions clouded by current sentiment or events that shouldn’t really matter if you’re investing for the long-term. Investing regularly should also help to reduce market timing risk, as you’ll end up with ‘pound cost averaging,’ an average entry price that reflects some days when the market is up and others when it is down. The good news is that it’s easy to set up regular savings with most online services.
Taking a fresh look at your investments
As the start of the tax year is in spring, it’s the perfect time to take a fresh look at your existing investment strategy, when a lot of the noise has quieted. Rebalancing your portfolio and weeding out any underachievers should also help you identify where you should be targeting any new investments so that they will complement your overall strategy.
Our friendly experts are available if you want to talk to us about ISAs or your investments in general. You can call us on 020 7189 2400, alternatively request a call back at the top of this page or email us at firstname.lastname@example.org and we’ll be in touch.
If you no longer have the time to choose and research your own investments, why not have a look at our Ready-made Portfolios? These contain a mix of investments chosen by our experts. All you need to do is choose the portfolio that suits your goals and attitude to risk and we manage it for you over time. You can open a Ready-made Portfolio for an ISA in minutes.
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.
Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.