My Stocks and Shares ISA is a great provision that has been around for many years. It allows me to add £20,000 a year to the account, and then invest the proceeds. These are in a tax-free wrapper, meaning that dividends I receive or capital gains I make from selling shares aren’t taxed. As a result, it makes it a perfect place to house my investments. Here are a few ways I’m trying to make the most out of my ISA.
Mindful of the deadline
The ISA year doesn’t run with the calendar year. The deadline is 5 April. What this means is that my annual £20,000 allowance finishes in April and then renews again for the following year. To get the most out of my Stocks and Shares ISA, I want to try and optimise my cash flow. For example, let’s say that I’ve got £25,000 now that I want to put in my ISA. The smart thing to do would be to put £20,000 in now, and put the extra £5,000 in after the start of the new tax year. If I wait until later in April to add the whole amount, then the extra £5,000 won’t be available to invest in the ISA until 2023.
Even if I don’t have such a large amount of cash ready to go, it still makes sense for me to invest what I can before the April deadline. I don’t know what the future holds for me, so I want to have the full potential to invest the maximum amount later this year.
The second point ties in with the first. I want to try and get invested (within reason) as soon as possible, regardless of the amount. This is because it allows my money to start working hard for me. This might be via buying dividend stocks before the share price goes ex-dividend, or taking advantage of cheap growth stocks. The long-term time horizon for my Stocks and Shares ISA means that over time, my returns should be able to compound.
Other benefits with a Stocks and Shares ISA
The third point is to use the Stocks and Shares ISA to maximise the tax benefits. I have other investment accounts that aren’t linked to my ISA. So when I’m including a stock in my ISA, I want to make the most of the tax saving. Therefore, my focus is to include high-growth stocks that could yield rich rewards further down the line. Then when I come to sell it, the capital gains saving will be considerable.
By comparison, holding defensive stocks or tracker funds in my ISA is fine, but if I’m tight on my available ISA balance then I’d prefer to leave these out.
My final point is to pick stocks with themes that I believe in for the long term. With the Stocks and Shares ISA being a tax wrapper, I don’t really want to be buying and selling on a daily basis. Rather, I’d want to consider themes such as renewable energy, FinTech and technology that I think can offer growth for many years to come.
