As the new tax year begins, it’s time to think about investing early in an ISA.
There are two compelling reasons why you should take out an ISA sooner rather than later - to get the potential for higher returns and to save tax.
ISAs are an excellent vehicle for tax-efficient saving and investing, and for the 2025/26 tax year, you can contribute up to £20,000 across all your ISAs. This allowance kicks in at the start of a new tax year and you lose any unused allowance from the previous year.
That’s why you should aim to use all your ISA allowance each year. And if you leave it until the end of tax year deadline approaches, you might struggle to find the funds to invest at short notice.
Investing early could increase your returns
If you’re investing in a Stocks and Shares ISA, you could increase your returns by making contributions at the start rather than the end of the tax year.
Data from Vanguard shows that someone who invests their ISA allowance of £20,000 at the start of each tax year could build up a much bigger pot of money than if they wait until the end of the tax year to do so. Investing is about time in the market so investing early gives your money more time to grow.
And a recent article in Money Week highlights recent research which shows that early-bird investors would be more than £34,000 better off over a decade. This suggests getting your finances in order at the start of the new tax year is a better strategy than leaving things until the last minute.
Investing early helps you use all your allowance
Many people don’t have £20,000 readily available to invest at any one time, so starting to contribute to your ISAs early in the tax year means you can spread your payments throughout the year.
You can incorporate payments into your monthly budget, making it more likely that you use all your allowance, or at least more than you otherwise would if you’d waited until the end of the tax year.
You could benefit from “pound-cost averaging”
Of course, some investors will be nervous about the current market environment, with Trump’s tariffs causing global market volatility. However, market dips can sometimes create cheap buying opportunities that long-term investors can benefit from in the event of a market recovery.
Moreover, starting early and making regular contributions to your ISAs throughout the year could help you balance risk when investing, as you could benefit from what is known as “pound-cost averaging”.
Pound cost averaging involves making regular payments into your ISA rather than investing a lump sum all at once. By making regular payments, you’ll buy fewer units when prices are high and more when prices are low, essentially averaging out prices. This is why it’s often seen as a good approach when markets are volatile and it removes the risk of making a lump sum investment right before a market fall.
So, by making regular contributions throughout the tax year, you could manage the level of risk you’re exposed to.
Investing early could save more tax
Another reason to use your ISA allowance early, beyond the potential for higher returns, is that you could save more tax. Once inside the ISA tax wrapper, your money grows free from capital gains tax and dividend tax.
Investing early can be done by a process known as ‘Bed and ISA’, which basically just means selling an existing investment and buying it back within an ISA. The sale does count as a chargeable event for capital gains purposes though, so you probably want to try to stay within the £3,000 annual capital gains tax allowance where possible.
Get in touch
With an ISA, you have several options. You can choose whether to put your allowance in one particular ISA or split it across several ISA types.
There are choices to be made, and we at Kellands will be happy to help you make them.
So if you are looking to make the most of your 2025/26 ISA allowance, why not give us a call today?
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate tax planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.