What is the 2018/19 ISA allowance?
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
One of the most simple and effective ways to invest is through an ISA, an Individual Savings Account which offers a tax-free allowance of £20,000 in the current 2018/19 tax year. This allowance will remain unchanged in the 2019/20 tax year.
What this means is that you can invest up to £20,000 tax-free in an ISA before 6 April 2019. You can then invest another £20,000 tax-free when the new tax year starts on 6 April 2019. Tax-free means you won’t pay any Income Tax on the interest your ISA generates or the increase in investment value.
Regular investing in an ISA and using up as much of your £20,000 tax-free allowance each year could be a good idea if you’re investing towards a long-term goal. For example, cash left in a bank will have its value eroded by inflation. But in a Stocks & Shares ISA, over the long term, that money has the potential to grow at a substantial rate.
It makes sense to use as much of your allowance as possible, and as early in the tax year as possible, as after 6 April you can’t get that allowance back. For example, say you had £25,000 to invest towards the end of March, if you waited until after 6 April you’d only be able to invest £20,000 in the new tax year’s ISA allowance limit. What you could do is invest £5,000 now as part of the 2018/19 tax year, and then invest the £20,000 as next year’s allowance.
The logic of investing as much disposable income as you can, as early in the tax year as you can, is potentially a sound strategy. It gives your money the time to grow, benefiting from the compounding effect of growing your initial investment and the investment returns. Try to get as close to the allowance as you can, as early as you can in the tax year.
For those of you who are in a position to invest the full £20,000 ISA allowance each year, rest assured that this is one of the most tax efficient ways to invest your money. By not paying tax on the interest your ISA generates or the increase in investment value you are ultimately compounding more growth towards your long term goal sum.