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Are you looking to get the best out of your Individual Savings Accounts (ISA)?  It sounds like a silly question, because of course the answer is yes, everyone wants to maximise their investments – so have you considered that when you invest has an impact?  Investing in your ISA allowance promptly each year, and by promptly we mean as soon after 6 April as possible, can certainly make a difference for two main reasons. One, it can help ensure your money is protected from taxes, and two, it gives your money more time to grow, resulting in a potentially bigger pot of money.

It goes without saying this approach isn’t right for everyone, and there are risks to investing in the market. You must carefully consider your ISA goals, the level of risk you want to take and assess your financial situation before making any decisions.

Below we share some of our expert advice for getting the most out of your ISA:

Maximising your ISA allowance

For the tax year 2023/24, the greatest amount which can be invested into an ISA is £20,000.  It is essential that you make full use of your ISA allowance if you can as any unused will not carry over to the next tax year.  Investing sooner rather than later can certainly hold some benefits, such as an extra year of tax-sheltered growth.  Nonetheless, we always advise our clients to be aware that investing outside of an ISA can come with tax risks.  As an example, the halving of the dividend tax allowance this tax year may mean that you end up paying tax on dividends earlier in the year if you hold investments outside of an ISA.

Great method of protecting your investments from tax.

An ISA is an extremely tax-efficient method of protecting your money from tax.  Everyone in the UK had an Annual Capital Gains Allowance of £12,300 (for the 2022/23 tax year).  This was decreased to £6,000 in the Autumn Statement on 17 November 2022, further reducing to £3,000 from April 2024.

The good news is, when you invest into an ISA, you can make the most of tax-efficient returns and there is no need to declare any interest from an ISA or any income or capital gains made from it when completing your annual tax return.

What about transferring your ISA?

If you are on the hunt for a more competitive deal or you are wanting to combine your investments, then transferring an existing ISA is something to look into.  There is no legislation about when you can transfer your ISA, this can be done at any point during the tax year, but it’s important to consider a few things before you do.  As an example, you cannot partially transfer the ISA, it must be transferred in full.  We would also suggest consulting with your current provider to see if they charge any fees for transferring.  You need to understand any cost implications.

If you can, then max it out!

There is a very well-known phrase which is ‘time in the market is more important than timing the market’.  In basic terms the longer you invest your money for, the more time it has to grow.  ISA’s are a superb way of growing your savings pot beyond the limits of a tax-efficient allowance.  If you can, then it’s really important to max out your ISA allowance each year.  You don’t have to have a significant sum to invest, you can still reap the benefits from small, consistent contributions from the beginning of the tax year.

Utilise pound cost averaging.

Did you know you can utilise pound cost averaging? If you start an ISA promptly in the tax year it can provide many perks for investing, especially if you set up regular monthly payments into a Stocks & Shares ISA.  What do you mean about utilising the pound cost averaging I hear you say?  Basically, this is the method of drip-feeding money into an investment over a period, so that it reduces the impact of market highs and lows. The theory of pound cost averaging is that when you invest a fixed sum every month, you’ll buy more units when an investment’s price falls, which can provide the potential for greater profits if they then rise.

Creating your investment plan early

Of course, the opposite can also be true – if prices rise, you’ll purchase less. Nevertheless, over time, pound cost averaging can help to smooth out the ups and downs in an investment’s value, reducing the risk of dramatic swings in your saving pot.  By establishing a regular investment plan early on, you’ll also be able to take advantage of the full tax year, allowing you to spread your investments across a longer period. This can help to reduce the risk of investing all your money at a time when the market may be overvalued.

The final word: Don’t wait until last minute, start planting seeds now and watch them grow.  If you need any further advice, then please do get in touch.  Whatever your investment goals, we’ll help you to grow your wealth in a way that’s right for you.

D_{David Allen Financial Services (Dalston) Ltd (Registered in England & Wales, Company Number 06966976) has its registered office at Dalmar House, Barras Lane, Dalston, Carlisle CA5 7NY. The company is authorised and regulated by the Financial Conduct Authority. Firm Reference 506138.}