Last ii ISA application for 2023-24 made 17 minutes before new tax year

• Last ISA application with interactive investor accepted 17 minutes before new tax year
• Bed and ISA instructions were up 91% over the period covering 1 January to 5 April 2024 compared to the same period in 2022
• But they were down 15% compared to the same period in 2023, which preceded swingeing cuts to capital gains and dividend tax allowances

Despite only being four days into the new tax year, almost half of customers (49%) of interactive investor, the UK’s second-largest investment platform for private clients, who contributed to their ISA account over the weekend have already used their full £20K allowance.

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This follows a busy tax year end season, with the last ISA application with interactive investor accepted at 23:43 on 5 April - 17 minutes before the new tax year.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Countless research shows that the early bird gets the worm when it comes to investing, and this lesson is not lost among a sizeable portion of our ISA customers. Investing early allows your investments more time in the market to potentially grow over the course of the year, benefiting from compounding returns.

“You don’t have to invest a lump sum at the start of the year to benefit. Drip-feeding investments at the start of the tax year can help mitigate the impact of market volatility and smooth out the inevitable bumps in the market, buying fewer shares when prices are high and more when prices are low – a process known as pound-cost averaging.”

Bed & ISA

ISA season 2024 proved to be the second-busiest ever for Bed & ISA applications on interactive investor. This came ahead of further cuts to the capital gains and dividend tax allowances to £3,000 (from £6,000) and £500 (from £1,000), respectively, from 6 April.

Bed and ISA instructions were up 91% over the period covering 1 January to 5 April 2024 compared to the same period in 2022, when the capital gains tax allowance was £12,300, and £2,000 for dividends. 

However, Bed & ISA applications in ISA season 2024 were down 15% compared to the same period in 2023, which preceded swingeing cuts to both allowances – from £12,300 to £6,000 for capital gains and from £2,000 to £1,000 for dividends – for the 2023-24 tax year.

Bed and ISA involves transferring assets held outside a tax wrapper into an ISA, so that future investment growth and income is sheltered from tax. It can also be a useful way to take advantage of any unused ISA allowance, especially if an investor has less “new” money to invest.

Customers will pay a trading fee on the re-purchase, not the sale. Customers will also pay stamp duty and market spread costs. Capital gains tax is payable on any profits above a person’s annual allowance, but moving the investments to an ISA means you won’t pay capital gains tax on those profits in the future.

Myron Jobson says, “Shifting investments into an ISA protects future dividends and gains from the clutches of the taxman and has become increasingly important over the past two years following swingeing cuts to the capital gains and dividend tax allowances. The decline in the number of Bed & ISA applications in ISA season 2024 compared to the same period in 2023 suggests that many investors had already started the process of making their investment portfolio more tax efficient before the first round of cuts came into effect.

“While you cannot avoid all commissions on the repurchase of investments into an ISA or stamp duty, if applicable, Bed & ISA is a tried and tested route to wrapping existing investments to generate the long-term benefits of a tax-efficient ISA – which over the long term is likely to outweigh the charges that might apply.”