The benefits of investing early

1. The time is now

Maximising the amount of time invested over the long term could make a notable difference to client investments. It’s the same reason that platform features like the prefunding of tax relief, switches and investments are so important.

But is the same emphasis always given to using a client’s ISA allowance as soon as possible? Or do we sometimes overlook the obvious and leave it until the end of the tax year?

2. A generous ISA allowance

The ISA allowance remains at a generous £20,000, making the impact of investing early even more important. For clients who regularly utilise their ISA allowance, the potential uplift is a perfect way to emphasise the importance of investing at the beginning of each tax year, not the end. Whilst reviewing client files to check 25/26’s ISA allowance utilisation, it is a great time to point out that one tax year ending means another is beginning!

And don’t forget, with a Flexi-ISA clients have even greater flexibility should they need to access some of their ISA to cover unforeseen short-term cash needs.

Consolidating multiple ISAs into one place can also bring some extra benefits. These include, lower base costs for larger sums under management, simplified reporting of values and transactions, and importantly following death, fewer companies for family to deal with when collecting and distributing wealth.

3. How to quantify the benefits of investing early 

There are two key benefits to investing into an ISA at the beginning of the tax year compared with the end:

• A boost to the ISA value itself – benefitting from future tax efficient growth for years to come
• Allowing tax allowances to be utilised on non-ISA holdings more efficiently

Lets look at these in a bit more detail:

Boosting ISA value

If we compare investing £20,000 a year for 6 tax years at the start of each tax year (6^th April) with investing the same £20,000 at the end of each tax year (5^th April). Both ISAs have £120,000 invested over the period and we’ve assumed 6% growth per annum:

*we have calculated from 6^th April 2020 to 5^th April 2026

Investing early is a clear winner, with £8,351 boost to the ISA value after 6 years.

Using allowances more efficiently

Currently, each individual receives several allowances they can offset against their investment returns. If £20,000 is held outside an ISA, for example within a general investment account, until it is moved to an ISA at the end of the tax year, this wastes some or all of these allowances which could have been utilised on other investment holdings.

Using the same 6% return but breaking it down 3% dividend yield, 2% capital growth an 1% interest yield, the wastage is easy to see.

With tax year end just around the corner, you will be undertaking work already on which clients have utilised their ISA allowance for 2025/26, prompting discussions and actions where necessary. Don’t forget, a new tax year is just around the corner and real value can be added by being an early bird.

4. Look beyond a single client

It doesn’t just stop there though, similar benefits exist when saving for partners, children, grandchildren and wider family members. The benefits of acting now when saving for the wider family goes further than just a single ISA and pension annual allowance and the long term savings for an individual.

The focus on lifetime gifting is increasing due to frozen tax bands and inflationary pressures. This will further spike from April 2027 when unused pension fuds form part of the taxable estate for Inheritance Tax (IHT) purposes. It is worth reminding yourself of the IHT allowances and exemptions that can be combined with the income and CGT allowances mentioned above to bring real value to clients and importantly their wider family.

The most common exemptions for lifetime transfers when saving for family members

Spouse/civil partner exemption - There is no UK inheritance tax (IHT) to pay on transfers between most married couples or civil partners (where both are UK long term resident) whatever the amount.

This can allow ISA and pension contributions to a spouse to maximise their tax efficient savings without triggering a (potentially) taxable gift for IHT purposes.

Annual exemption - Individuals are entitled to give away £3,000 in total, in any tax year, free from IHT. This allowance can be backdated by one year, so where the full £3,000 is not used in one tax year it can be carried forward to the next.

This means someone could contribute a total of £6,000 a year to their children/grandchildren savings without incurring IHT.

Small gift exemption - Outright gifts of up to £250 to each recipient are exempt from IHT. The total of any one person’s allowance cannot form part of any larger gift i.e. as part of the annual exemption.

Normal expenditure from income - gifts made regularly and out of income can be made without incurring IHT, provided they do not affect standard of living. There is no maximum limit on the amount which can qualify meaning that this exemption can be a really powerful way to save for family members, perhaps via a monthly direct debit.

Beyond simple spousal/civil partner planning, we have many options for clients looking to provide a nest egg for younger generations. This intergenerational planning is a real value add when advising clients, really showing the value of advice.

If you would like more information on the options available, please view our article: Saving for children – what options are available and what do I need to know?