New HMRC allowance decision ‘could leave savers £17,000 better off’ | Personal Finance | Finance
J.P. Morgan experts analysed the data (Image: HABesen via Getty Images)
Financial experts from J.P. Morgan have revealed that making one crucial decision regarding tax-free ISA savings “could boost your investments by thousands of pounds”. ISAs are shielded from HMRC taxation and up to £20,000 can be deposited into them annually.
This allowance can be placed into a cash ISA that generates straightforward interest like any standard savings account, or directed into a stocks and shares ISA, which is tied to the stock market. Savers can divide their £20,000 across different types of ISA, and from 2027, the cash element will be reduced to £12,000, although the overall allowance will remain at £20,000.
New analysis from J.P. Morgan Personal Investing has highlighted how investing early and consistently throughout the tax year over the past decade would have significantly strengthened UK investors’ portfolios.
It found that investing the average annual ISA contribution — according to HMRC data — of £7,594 each year since 2016/17 into a stocks and shares ISA would be worth £135,600 by the end of the 2025/2026 tax year, provided the money was drip-fed monthly into a global markets tracker.
However, had savers invested the same annual amount as a lump sum at the start of each tax year over the same 10-year period, they would have achieved a portfolio value of £149,400. In contrast, savers would have accumulated a smaller portfolio of £132,500 had the lump sum been invested at the end of each tax year — a difference of nearly £17,000. The figures were calculated based on an individual investing in the MSCI All Country World Index (LSE: ACWI) while reinvesting dividends.
Stocks and shares ISAs are part of the mix available (Image: Patamaporn Umnahanant via Getty Images)
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Claire Exley, head of financial advice and guidance at J.P. Morgan Personal Investing, said: “The start of the new tax year is an important moment for investors and savers as the annual ISA allowance refreshes. Many will be considering their strategy for contributing money into their tax-free ISA wrapper and deploying any excess savings into the market.
“For investors, historical data shows that investing earlier in the tax year could boost your investments by thousands of pounds over the long-term.
“While past performance isn’t a reliable guide for future performance, the 10-year data suggests that investors who stayed invested in global markets for longer were better off compared to those who waited until the final week of the tax year to invest.
“The 12-month gap in contributions can make a significant difference when compounding takes effect and boosts an investment portfolio. While we would never suggest trying to time the market, we do advocate giving your investments time in the market as long-term investing increases the probability of generating profits and allows more time to benefit from tax-free compounding.
“For those who cannot deploy a lump sum, making monthly contributions into your stocks and shares ISA has the benefit of drip-feeding money into financial markets in a tax-efficient way.
“This approach can help smooth out any periods of volatility as we are currently experiencing in markets and have seen in the past when the pandemic impacted global markets.”
J.P. Morgan emphasised that, as with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Tax rules vary by individual status and may change.
