The end of the tax year is fast approaching. For many of us, that means it’s time for the annual ‘investment tidy’ so that we don’t miss out on our ISA allowances before it’s too late. What can that mean as far as your options are concerned?
The 2024/25 tax year will end at midnight on 5 April – so if you plan to make use of this year’s tax-free ISA allowance and haven’t yet done so, you need to take action before that date, because it cannot be carried over. Human nature dictates that many of us leave our ISA investing till the very last ‘mad dash’ moment. Last year, for example, interactive investor received their last ISA application for the 2023/24 tax year at 17 minutes to midnight on April 5th!
Your full annual ISA allocation is £20,000, and you can spread it as you like across a number of different varieties on the ISA theme.
Stocks and shares ISAs enable you to invest in the stock markets via shares, funds or investment trusts; any capital growth is free of tax, as are dividends or interest earned. Cash ISAs are effectively tax-free savings accounts.
Provided you are able to tie your money up for at least five to 10 years and ideally longer, you’re likely to do better by choosing a stocks and shares ISA than a cash equivalent, because stock markets tend to outperform savings accounts over the long term.
More specialist tax-free alternatives include Lifetime ISAs, designed to help younger people save for a first home or for financial security in later life; you must be 18 or over but under 40 to open a Lifetime ISA.
It makes sense to use as much of this year’s allowance if you can, as the ability to shelter £20,000 from income and capital gains tax has become ever more valuable in the higher tax environment of recent times.
If you’re investing in the stock market (and don’t need to draw an income), your returns may take the form of reinvested dividend payouts as well as capital gains - boosting the power of compound growth. Crucially, your returns are not eroded by tax within the ISA wrapper, so the compounding effect is further enhanced over the long term.
Investing out of income
Of course, most people don’t have a spare £20,000 knocking around at the end of the tax year, or indeed at the start of the next one. However, this is where it pays to plan ahead and consider drip feeding investments on a monthly basis. Yes, it’s too late for this tax year but very wise as an action point for 2025/26: saving regularly into your ISA out of earned income throughout the tax year.
It’s a simple process to set up a regular investment arrangement. If, like most self-directed investors, you’re using an online platform such as interactive investor to invest, you should be able to set up a direct debit that pays straight into your chosen ISA investment each month. All abrdn-managed Investment Trusts are available, and you can choose to pay in from as little as £25 a month. Plus, you’ll be able to make occasional one-off contributions too, if you find yourself in the money.
Regular investing is super convenient because everything happens automatically once it’s up and running.
Give your kids a head start
ISA investment extends to children too. If you’re keen to make provision for younger members of the family, or indeed any other child – a godchild, perhaps – there is a separate Junior ISA allowance available, currently worth £9,000 each tax year. Like all ISAs, the same 5th April deadline applies if you want to invest in a Junior ISA before the end of the current tax year.
The child’s parent must open the account, but other family members and friends can then make contributions to it, whether regular or ad-hoc. Importantly, the Junior ISA cannot be accessed by the child (or anyone else) until the child reaches age 18, at which point it rolls over automatically into an adult ISA in their name, and they can do as they like with it.
Given that the money could be working hard in the stock markets for 18 years or more, this is a prime opportunity to provide your youngsters with the kind of financial leg-up that could make such a huge difference as they fledge the family nest and make their way in the world.
ISA ideas for everyone
So, what kind of investment trust might you consider for your ISA? That will depend on various factors, including how you feel about investment risk and whether or not you’ll need to draw a regular income from it (to supplement your pension, for instance).
abrdn’s stable includes a diverse range of UK and internationally focused investment trusts focused on producing long-term capital growth but also the security of a regular income; if you don’t need the income, it can be reinvested to boost returns.
As a core holding you could consider, for instance, highly regarded names such as Dunedin Income Growth Investment Trust for a UK bias, Murray International Trust for a broader remit, or abrdn Asian Income Fund for exposure to Asia’s rapidly growing markets.
If you can invest for several decades and you’re comfortable with greater volatility in exchange for the potentially higher returns available over the long term from smaller companies and more concentrated portfolios, abrdn also runs several growth-oriented trusts, including abrdn UK Smaller Companies Growth Trust, abrdn New India Investment Trust and abrdn Asia Focus.
You might perhaps choose to pair a steady core holding with a smaller exposure to a racier growth trust for the best of both worlds.
But however you allocate your money, the important thing is to take the plunge and use your ISA allowance before it’s too late – the clock is ticking.
Important information
Risk factors you should consider prior to investing:
- The value of investments and the income from them can fall and investors may get back less than the amount invested.
- Past performance is not a guide to future results.
Other important information:
Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG, authorised and regulated by the Financial Conduct Authority in the UK.
Find out more at www.abrdn.com/trusts or by registering for updates. You can also follow us on X, Facebook and LinkedIn.