In our Budgeting Clinic series, Tom Francis, head of personal finance at Octopus Money, answers your questions about all things personal finance. Tom is a fully qualified and chartered financial planner. Worried about how your savings are shaping up for the future, or need a plan for how to get out of debt? Drop him an email on money@theipaper.com.
Question: I’ve realised we’re only a few weeks away from the end of the tax year and I’ve barely used my £20,000 ISA allowance. I’ve put around £5,000 into a stocks and shares ISA earlier this year, but I still have roughly £15,000 sitting in a savings account earning about 3.5 per cent interest. I already invest in a globally diversified fund inside my ISA. I’m a higher-rate taxpayer and feel I should act before 5 April. But markets feel volatile at the moment, and I’m not sure whether I would be investing because it fits my long-term plan, or simply because there is a deadline looming.
Answer: You are not alone in feeling a rising sense of urgency as April 5th approaches. The phrase “use it or lose it” gets repeated so often at this time of year that it can make even disciplined investors question whether they are about to miss out on something important.
Let’s start with what that phrase actually means.
Each tax year, you can put up to £20,000 into ISAs. Anything held inside an ISA grows free from income tax and capital gains tax (as well as interest on cash savings). When the new tax year begins on 6 April, the allowance resets. If you have not used the full £20,000, you cannot carry the unused portion forward. That specific year’s tax shelter simply disappears.
For higher-rate taxpayers, that shelter can be particularly valuable. Outside an ISA, savings interest above your £500 personal savings allowance can be taxed at 40 per cent. Investments held outside an ISA may also be subject to capital gains tax in the future. So there is a genuine advantage to using your ISA allowance where it makes sense.
But an ISA is just a wrapper. The more important decision here is not “ISA or not”, it is “cash or investment”.
At the moment, your £15,000 is earning 3.5 per cent in cash. That gives you certainty. On that balance, you would earn roughly £525 over a year before tax. There are no market swings, and the money remains accessible.
If you move it into your existing globally diversified fund, you are accepting short-term ups and downs in exchange for the potential for higher long-term growth. Historically, broad global equity markets have delivered average annual returns in the region of 7 to 10 per cent over the long term, although those returns are never smooth. Some years are negative. Some are strong. The journey can be uncomfortable.
The trade-off is stability versus long-term growth potential.
You mention that you normally invest a set amount every month. That structure removes the pressure of trying to pick the “right” moment. By investing regularly, you naturally buy more units when markets are lower and fewer when markets are higher. Over time, this can help smooth the impact of short-term volatility.
There is no universal rule that monthly investing is always superior to a lump sum. In fact, purely from a mathematical perspective, investing a lump sum earlier has often produced stronger outcomes over time, simply because markets tend to rise more often than they fall.
However, numbers only tell part of the story. A structured monthly approach has a major practical advantage: it helps you stay consistent. It reduces the temptation to second-guess your timing and makes it easier to stick with your plan during volatile periods. And in long-term investing, consistency often matters more than precision.
This is where the deadline can cloud judgement.
If this £15,000 is genuinely long-term money that you will not need for at least five years, and adding it now would still sit comfortably within your overall strategy, then using more of your ISA allowance before 5 April could be perfectly sensible. As a higher-rate taxpayer, maximising tax-efficient space has real value. But it is important to remember that the ISA allowance is an opportunity, not an obligation.
The most important question is not, “will I waste this year’s allowance?” but, “does this decision fit my long-term plan and risk tolerance?”
Deadlines create urgency, but urgency is not a strategy.
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If moving the full £15,000 now would represent a break from your usual disciplined approach, and is being driven mainly by the calendar rather than your plan, then it may be wiser to stick with the structure that has served you well so far. There is also a middle ground. You could use part of the remaining allowance now and continue investing the rest gradually in line with your normal monthly schedule.
Don’t forget, you can also use this year’s allowance by shielding some of that £15,000 in a cash ISA before the 5 April. This way, you make use of this year’s allowance, without feeling forced to take on more investment risk. At a later date, you could then transfer between cash ISA and stocks and shares ISA, and this does not count as a contribution.
You are already investing consistently in a diversified fund. You are thinking about tax efficiency. You are questioning whether your motivation is strategic or reactive. That level of reflection is far more important to long-term success than squeezing every last pound of this year’s allowance.
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