Why the stocks and shares ISA deadline matters even if you don’t have lots to invest

The stocks and shares ISA deadline is days away. But does the deadline actually matter if you don’t have a lot to invest? Karl Talbot takes a look.

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The deadline for using this year’s ISA allowance is now just days away. After 11:59pm on Tuesday 5 April, the ISA allowance for 2021/22 disappears whether you’ve used it or not.

So, why might the ISA deadline matter even if you don’t have a lot to invest? Let’s take a look.


What is the ISA allowance?

You can save or invest in your ISA without having to pay tax on any interest, capital gains or dividends you earn.

Your ISA allowance is the maximum amount that you can put into any type of ISA within a given tax year. The allowance for both the current tax year and 2022/23 is £20,000. In fact, the ISA allowance has been frozen at this level since 2018/19.

How does the ISA deadline work?

The ISA deadline refers to 5 April as this is the date when the 2021/22 tax-year comes to an end.

When it comes to ISAs, the tax year is very important. That’s because it also signifies the arrival of a new annual ISA allowance, as well as the end of the previous years’ allowance.

Put simply, if you don’t use your ISA allowance in a given tax year, you lose it. You can’t carry any proportion you didn’t use in one tax year over to the next.

Is there still time to open a stocks and shares ISA?

There is still time to open a stocks and shares ISA before the end of the tax year. That said, leaving it until the very last minute is best avoided.

That’s because to open an ISA you’ll need to ensure you pick an account that’s suitable for you. For example, if you choose a stocks and shares ISA, you’ll need to choose how you invest. Rushed investment decisions are certainly not recommended!

As well as this, in order to apply for a stocks and shares ISA, you’ll typically need to have a number of personal details such as your National Insurance number to hand. So, it might be better to act soon rather than later as you may need time to dig these things out. 

For more on why it’s best to avoid leaving it until the last minute to open an ISA, take a look at our article that explores five pitfalls to take into account before opening a stocks and shares ISA.


Why does the ISA deadline matter if you don’t have lots to invest?

If you have less than £20,000 to invest, you might be indifferent about using this year’s ISA allowance. After all, you can always stash your wealth into an ISA during the next tax year instead. 

However, if you have this mindset it’s important to bear two things in mind.

1. You may have more to invest next year 

Just because you have a relatively small sum to invest this year doesn’t mean it will be the case next year.

For example, you may score a promotion at work within the next 12 months or so. Alternatively, you may have an epiphany next year and decide you want to move more of your savings into investments. 

The point is, changing circumstances could mean you’ll have a bigger sum to invest next year. So, if you don’t use up this year’s ISA allowance, you may go on to regret it.  

2. ISA allowances could be scaled back in future  

While the annual tax-free allowance has stood at £20,000 for four years, the government reserves the right to change it in future. This means that it’s always possible that the ISA allowance could decrease. 

It could even be argued that this is more likely to happen than ever due to the UK’s worryingly high budget deficit. In other words, scaling back on future annual ISA allowances could deliver a significant windfall for the Treasury, which is why it shouldn’t be ruled out.

So, if do want to open or add to a stocks and shares ISA, then it might be a good idea to get your skates on!

To see a list of ISA options, take a look at The Motley Fool’s top-rated stocks and shares ISAs.

Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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