Everyone is permitted to invest in an ISA each tax year, up to a maximum amount. If you have yet to reach your full allowance for 2021/2022, then you will need to act quickly if you want to capitalise on it – the deadline is coming up on 5th April! ISAs have many forms and this article will concentrate on stocks and shares ISAs. If you take out one of those, you need to be prepared for the long haul. Stocks and shares are notoriously volatile and can easily increase or decrease depending on economical whims and other factors. We have all heard reports on the news about how a throwaway comment by a thoughtless world leader can send indices into turmoil…
Generally, over many years, the overall trajectory is upwards and you are likely eventually to make a profit. (Of course, remember investments always involve various risks, and you may get back less than you put in. There is a risk of losing the capital invested.) The trick is not to panic and pull your money out when values are low. This requires planning to avoid that pitfall. You need to be sure you will not require that money within the next five years at least.
Whichever route you use to set up an ISA, there will inevitably be fees to pay. Some ISA providers will deduct the fee from the amount you put in, which means that technically you could be under-using your allowance. Others will let you pay the fee as an additional contribution separately from the ISA total. Check first with your provider, intermediary or financial adviser how this should be managed. The last thing you want is to have money returned along with a patronising communication about breaching the limit.
Tax free
ISA gains are free of tax, which is a significant advantage. This still applies even though interest and dividends are less punitively taxed than when ISAs were first introduced. All this could change in the future, of course. Also, if you are a citizen of another country, your ISAs could be subject to tax there even they are not taxed in the UK currently.
Unlike with some transactions, there is no facility to carry over your ISA allowance into a subsequent tax year. If you do not use it, then you will lose it, as the old cliché suggests. Bearing in mind some of the bureaucracy that can be involved, it is best to take action sooner rather than later. Even if you are super-organised, delays by other parties could take you past the cut-off with little or no redress. Some people try to time the market and buy at the lowest dip of the curve. However, towards the end of the tax year, it is better just to get on and place your investment. There will be time enough to allow for growth over subsequent years, which should ride out the expected peaks and troughs.
As with any financial product, you need to scrutinise the small print and make sure it is the right decision for you. Independent advice should be sought if necessary. You may find The Motley Fool UK’s top-rated stocks and shares ISAs helpful.
