Sun shines for the start of new tax year

THE excitement of the end of tax year rush to fill up your tax free Individual Savings Account (Isa) may be over, but don’t fret. Yesterday’s sunshine and birdsong heralded the start of a new tax year and the chance to start investing in a new Isa.

This tax-year also sees a rise in the Isa allowance from £10,200 to £10,680. The investment will be free from capital gains tax on any growth and from income tax on dividends or interest. Early-birds who take advantage of their allowance could benefit to the tune of £748.

According to research from the Fair Investment Company, if you were to invest the full allowance of £10,680 into a stocks and shares Isa right at the beginning of the tax year, based on growth of 7 per cent, by the end of it you could have £11,428.

“This figure just shows how much better off you can be by acting fast,” explains Julie Smith, savings and investment analyst at Fair Investment Company. “Every March and April there is a mad rush on Isas, but these people who do leave it until the last minute could be missing out on hundreds of pounds in interest. While those who invest at the start of the tax year benefit from a full 12 months worth of interest on their investment, and as you can see, that can make a really big difference.”

According to Barclays Stockbrokers, a third of their Isa investors will invest a lump sum in their Isa account at the start of the new tax year.

Catherine Penney, vice president of Barclays Stockbrokers, comments: “When it comes to investing tax efficiently, it can be beneficial to take full advantage of tax allowances early in the tax year, ideally as soon as it begins. Investors who use their Isa allowance at the start of the tax year have the opportunity to shelter an extra year’s returns from tax, compared to someone who chooses to invest on the last day of the tax year”.

Investors also appear to be shying away from the returns currently available from cash and so are continuing to invest in equities.

STOCKS AND SHARES OVER CASH
According to Catherine Penney, “with interest rates remaining low, and inflation above 4 per cent, many of our clients prefer to hold equity investments in their Isa to access the potentially better returns available and are prepared to accept the risk in doing so.”

Furthermore, the benefit of investment Isa is the breadth of choice that they offer, not just stocks and shares but also funds, gilts and bonds, exchange-traded funds (ETFs), exchange-traded commodities (ETCs) and structured products. Individuals can choose from a wide range of products to build a bespoke portfolio that suits their risk appetite and investment objectives.

INCREMENTAL BENEFITS
Even if you are not in a position to invest the full £10,680 in one go, it still pays to start depositing money early. Based on 7 per cent growth, investing the full stocks and shares allowance but spread out evenly over 12 monthly payments would result in a return of £401.

However much you are able to invest, the early-bird catches the fattest worm, and the longer you leave it the less you are likely to benefit.