How to avoid last-minute ISA and pension pitfalls
One in eight of all lump sum subscriptions to stocks and shares ISAs on investment platform Hargreaves Lansdown are made in the last fortnight of the tax year, which starts on 6 April and finishes on 5 April.
Meanwhile, for self-invested personal pensions (SIPPs) one in six lump sum personal contributions are made in the last fortnight of the tax year, Hargreaves Lansdown said.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, points out that investing in your ISA or Sipp at the start of the tax year allows you to take advantage of up to 12 months potential tax-free growth. Nevertheless, for those not able or willing to, there is still something to be said for using your tax-free allowance before you lose it.
“Unlike the garage flowers you bought at midnight, or that summer you failed to pack shoes, a last-minute ISA dash can be fruitful. Any money you save or invest will be free of tax forever, so if you haven’t used your allowances so far this tax year, it’s far better to join the rush than it is to miss out altogether.
“Even though it takes less than five minutes to open an ISA online, give yourself a little bit longer to steer clear of the five potential pitfalls, because once this tax year has gone, this year’s ISA allowance is gone forever,” she explained.
Five tips to avoid the rush
Here are Hargreaves Lansdown’s five tips to avoid any last-minute ISA and SIPP pitfalls…
- Check contributions so far
In each year you’re allowed one cash ISA and one stocks and shares ISA. So if, for example, you make a single payment into a cash ISA at the start of the tax year, you can’t take out another one later in the tax year – unless you’ve arranged a transfer. You might think you’d remember any contributions you’ve already made, but it’s easy to forget a direct debit, or a small one-off payment, so check where you stand.
- Undecided? No problem
If you’re planning to invest – through a stocks and shares ISA or a SIPP – you’re not always in the right frame of mind pick shares or funds at the eleventh hour. The good news is that you don’t have to. Before the deadline expires, you can put money into a stocks and shares ISA or SIPP as cash, and move into your chosen investments when you’re ready.
- Avoid admin slip-ups
If you’re sending a postal application, you don’t have time to correct mistakes like forgetting to sign forms or writing cheques out incorrectly, so pay attention to all the details. If you’re applying over the phone or online, make sure you have your National Insurance number as well as a means of payment.
If you have recently moved, don’t leave your application to the last minute. Your ISA provider will do electronic anti-money-laundering checks for you, but recent movers may fail the check, so you need to send more documents in. It’s worth getting started as soon as possible, so if something crops up, you have plenty of time to deal with it.
- Know when the last minute is
There are different deadlines depending on how you are using your ISA and pension allowances, so check when your application needs to be in. It’s also worth making sure you know when your provider is open for business.
- Beat the rush
One in eight people leave their ISA subscriptions to the last minute and one in six do so with their SIPP, which means there’s always a rush in the last few days and hours of the tax year. There’s a chance the trend could be even more pronounced this year.
In a recent survey of Hargreaves Lansdown’s clients, almost one in five said that as a result of Brexit, they were planning to invest later this tax year than usual. Figures from the Investment Association, a trade body, seem to indicate this is the case more broadly across the industry, as money continued to flow out of funds in ISAs in January.
Once we get a bit more certainty – either way – by the end of March – it could mean a flurry of last-minute ISAs, and it will pay to get in ahead of the rush.