Filling ISA allocations early in the new tax year could leave you better off

Did you know that investing your ISA allocation at the start of the Tax Year could leave you better off than leaving it until the last few days?

The finance industry has a habit of pushing people to make the most of their ISA and pension allowances towards the end of the Tax Year and it’s absolutely right that we encourage people to do this because allowances are time-bound.

However, for those clients who have cash or investments in a General Investment Account (GIA), it is an opportunity to protect investments from HMRC much earlier in the year – and it is more time in the market if you’re moving cash to investments, which has historically paid off.

According to analysis from AJ Bell, last-minute investors of £1,000 each year in the Investment Association global sector average fund would have turned £23,000 into £62,240. Meanwhile, early birds would now be sitting on £65,290. This is the time since ISAs were established in 1999 and is based on investors investing in the same unit trust.

Tax-free gains have become even more valuable now, as the UK faces the highest tax burden since the 1940s, following the Chancellor’s Spring Statement in March.

If you’re working, you can keep more of your pay if you make more pension contributions, as this is deducted pre-tax from PAYE, or you can reclaim tax relief if you’re self-employed.

Clearly, there will be a balance to strike for everyone when it comes to taking salary off the table in the face of more expensive bills, but maximising ISA and pension allowances are the cornerstone of financial planning for a reason, as the tax savings alone make them invaluable.

The value of an investment can go down as well as up. Past performance is not a guide to future performance.

The Financial conduct authority does not regulate taxation advice

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