Stocks and shares ISA warning: why it’s important to avoid the last-minute rush
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According to a Hargreaves Lansdown, amounts stashed into stocks and shares ISAs have almost doubled over the past ten years. And with the ISA deadline looming, the investing platform highlights how many investors often leave it until the last minute to use up their tax-free allowance.
Here’s why you really shouldn’t delay using up your ISA limit for the 2021/22 tax year.
What is the ISA tax-free allowance?
The tax-free ISA allowance refers to an annual tax-free limit that every adult in the UK can put into an individual savings account (ISA). For the current 2021/22 tax year, the allowance is £20,000.
Anything you earn from an ISA, including savings interest, dividends and investment returns, stays tax-free year after year. The allowance covers you for any type of ISA, though the most common are stocks and shares ISAs and cash ISAs.
Importantly, the deadline for using your allowance for the current tax year is less than three weeks away. That’s because a new tax year begins on 6 April. While there’s another £20,000 allowance for 2022/23, if you haven’t used up your full allowance for 2021/22 then you won’t be able to roll it over into the next tax year.
Can you wait until the last minute to use up your ISA allowance?
The current tax year ends at 11:59pm on Tuesday 5 April. This means that, technically, you have until then to use up your ISA allowance.
In fact, many do wait until the final moments to make the most of tax-free investing. According to Hargreaves Lansdown, thousands of people rushed to use up their ISA allowance on the last day of the 2020/21 tax year. To put this into context, the provider said its investors opened or topped up a stocks and shares ISA every four seconds on 5 April 2021.
Meanwhile, in the final hour of the last tax year, an ISA was opened or added to every six seconds.
Why shouldn’t you wait until the last minute to use up your allowance?
While you can officially leave it until the last minute, here are three reasons why you may wish to use up your annual allowance sooner rather than later.
1. It can take time to open an account
If you’ve ever opened a stocks and shares ISA before, or any other type of investing account, you’ll know that you often have to undergo identity checks to satisfy the provider that you are who you say you are.
While these checks often go smoothly, sometimes it can take a while for a provider to verify your details. So, if you do leave it until the last minute to open an ISA you could miss the deadline.
2. Technical issues can happen
Technical gremlins won’t respect the ISA deadline. Leaving your application until the final day puts you at risk of falling victim to technical errors, either on your side or that of the provider. It’s best not to risk the frustration of this happening to you.
3. You could make the wrong investing decision
Rushed decisions rarely deliver the best outcomes. So, if you do leave it until the last minute to open an ISA, then you may not have time to fully think through your investment choice.
Remember, there are lots of different types of ISAs out there, so you’ll need to do your research on where you feel comfortable stashing your wealth. If you’re a newbie, do take the time to read the investing basics to put yourself on the right path.
Are you looking to open an ISA before the end of the tax year? If so, take a look at The Motley Fool’s top-rated stocks and shares ISAs.
Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Don’t leave it until the last minute: get your ISA sorted now!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
Our Motley Fool experts have reviewed and ranked some of the top Stocks and Shares ISAs available, to help you pick.
Investments involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.
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