ISA dash: how investors rushed to open a stocks and shares ISA on deadline day

New data reveals many investors used up their annual ISA allowance on the final day of the 2021/22 tax year. Was this a wise move? Karl Talbot takes a look.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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New data reveals many investors made a last-minute sprint to open or add to a stocks and shares ISA on the final day of the 2021/22 tax year. 

So, is waiting until the last minute to use up your annual ISA allowance a wise move? Let’s take a look.

[top_pitch]

What is significant about the end of the tax year?

Every year, on 5 April, the tax year comes to an end. On 6 April, a new one begins.

In personal finance circles, these dates are significant as the end of the tax year also signifies the end of the annual ISA allowance. For the 2021/22 tax year, which ended on Tuesday, the ISA allowance was £20,000.

Any investor who didn’t use their full allowance in 2021/22 won’t have another opportunity to do so. This is due to the nature of how ISAs work. As a result, this ‘use it or lose it’ rule means investors are often tempted to act before 6 April.

To learn more about the annual ISA allowance, see our article that explains what stocks and shares ISA are, and how they work.

What did the data reveal about ISAs opened on 5 April?

Fresh data from Hargreaves Lansdown reveals a stocks and shares ISA was opened or topped up on its platform every SEVEN seconds between 11pm and midnight on Tuesday 5 April.

The investing platform revealed that the busiest time for account activity was between the hours of 10pm and 11pm. During this time, investors were stashing cash into an ISA every 4.5 seconds.

Meanwhile, the investing platform revealed it had 2.4 million visits to its website during the final week of the tax year. Interestingly, this was 100,000 more than a year ago.

It’s worth knowing that when it comes to using your ISA allowance, you don’t necessarily have to invest the full £20,000 before the ISA deadline. Instead, you can transfer money across to a stocks and shares ISA and leave it in cash. As long as your money is in the account, it still counts towards your annual allowance. 

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, explains that almost a third of its clients took advantage of this rule. She explains: “We saw a big uplift in the number of people who chose to secure their ISA allowance without having to make an immediate decision about their investment. Some 31% of people parked their allowance in cash, and will decide where to invest once the outlook is clearer.”

[middle_pitch]

Is it wise to use up your ISA allowance on the final day of the tax year?

Investors who successfully added to their ISAs on the final day of the tax year won’t win any prizes for punctuality. That said, these investors will now be safe in the knowledge that any returns delivered from their investment will remain tax-free, year after year.

Despite this, however, it can often be a good idea to act well ahead of ISA deadline day. Hargreaves Lansdown’s Sarah Coles explains why: “If you’re still recovering from the drama of the last-minute ISA dash, don’t be tempted to put your feet up until the next race for the deadline.

“The beginning of the tax year is by far the best time to take advantage of your new ISA allowance, whether as a lump sum, or by setting up a regular investment, through a direct debit, so you take advantage of pound/cost averaging.”

Coles goes on to highlight how using your 2022/23 ISA allowance sooner rather than later will leave you in a better position to benefit from any stock market gains.

She explains “Getting it sorted now means your investments will be sheltered from tax straight away and positioned to take advantage of any share price rises. Someone who invested on the first day of the tax year every year for the past decade would have seen their investments grow almost £20,000 larger than those who invested exactly the same amount – but on the last day of the tax year.

“Not only that, but when other investors are doing the last-minute dash in April 2023, you can relax, safe in the knowledge you’ve already spent a year doing the right thing.”

Are you looking to open an ISA for the 2022/23 tax year?

The 2022/23 tax year gives you a brand new £20,000 ISA allowance.

So, if you’re keen to use it, 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 considered so you should consider taking independent financial advice.

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