Emma Wall: Hello and welcome to the Morningstar series, Ask the Expert. I'm Emma Wall and I'm joined today by Hargreaves Lansdown, Danny Cox to give his last-minute ISA tips.
Hi, Danny.
Danny Cox: Hi.
Wall: So, I thought we could start with running through the deadlines. What have you already missed? And what have you got to go?
Cox: So, the main deadline is midnight on Wednesday the 5th of April. So, if you haven't done your ISA by that point than you've lost the allowance. You have no opportunity to redo it. So, that really is a very, very cliff-edge allowance deadline you need to make sure you hit. So, if you're paying money by cash which you can do online or over the phone that must be done by midnight on Wednesday the 5th of April.
Wall: And what about other deadlines, because postal deadlines unfortunately I think we've already missed and transferring existing shares into an ISA as well, can that still be done?
Cox: You can still do what's known as Bed and ISA where you transfer existing shares or funds into an ISA, but some of those deadlines have passed, it depends on your provider you need to check with them. But certainly, the hard deadlines for most of those tend to be a couple of days earlier than the 5th of April, so you need to get your skates on, but some deadlines have passed.
Wall: In this digital age, what surprises me, the volume of investment that is done in that very small last minute window here and how with Lansdown and across the U.K. how many people leave it to the last minute?
Cox: Well, it's incredibly there's roughly 14% of all ISA applications. If you apply that across stocks and shares ISAs, that's around £2.5 billion is expected to be sheltered from tax in the last week of the tax year. So, around about 15% of people do leave it to the last minute. I mean what I would suggest is that if you're leaving it to the last minute this year is that you actually take the advantage of doing next year's ISA allowance straight away, so you're not having to rush around and get it in the last minute this year.
Wall: And making a decision under pressure is not great, we all know the behavioral signs means that we do not like to feel pressured. So, what options are available to people who want to take advantage of the allowance but perhaps haven't made the decision about where they would like to allocate their stocks and shares ISA.
Cox: Well, I think, you make a very good point, Emma, the most important thing is to use your allowance. So, you must put your money into your ISA before midnight on the 5th of April. But what you can do is you can put your money in what's known as a Cash Park. So, it's a cash account where your money is just held pending your investment decision.
So, once you've got your money in there, you've secured your allowance, that's the most important thing and then you can look to add into your investments at your leisure; you could do that in the next week or the next month or over the next year. And in fact, lots of people spread that investment over the period of 12 months to take advantages of ups and downs and various opportunities in the market.
Wall: Now, taking advantage of ups and downs, you don't have to do that manually, you can also do that through regular saving and that is something that we here advocate, both at Morningstar and indeed, I know you do at Hargreaves Lansdown, because it does help to smooth volatility, doesn't it?
Cox: It smooths volatility and also, it's very, very, very good for budgeting because you're thinking, rather than investing £15,240 in one go or £20,000 in one go as it is for the new tax year, you're spreading that investment at around about £1,000 a month over a period of time or less if you're not in the full allowance.
And of course, yes, you're then buying into the market through the ups and through the downs and when you're buying it through the downs as well, you're automatically buying in at cheaper prices. You're getting actually more money, more units or more shares for your money, so you're likely to make better profits doing it that way. So, spreading investment works very well through regular savings.
Wall: And you can do that from as little as…?
Cox: You can do that from as little as £25 a month. So, we got some people who will start a regular savings ISA for as little as £25 a month and then look to top that up throughout the year as they get lumpsums or as they feel there are particular opportunities in the market and that works extremely well.
Wall: And we have been broadly talking about adult ISAs here, but there are same rules applied for the Junior ISA as well, don't they?
Cox: Yeah, very much so. The Junior ISA is almost exactly the same as an adult ISA. You have same options in terms of how you invest funds and shares, et cetera. But it is designed for children from zero – from age zero right the way up through to age 18. But the allowance this year is £4,080. From April, the 6th, the allowance next year is £4,128 and it's a very good way for both parents and grandparents to save for their children's benefits.
Wall: And there is a third option now, isn't there, there is the Lifetime ISA.
Cox: Lifetime ISA.
Wall: When does that launch?
Cox: That launches on the 6th of April and it enables people who are under 40 to be able to save either for their first home or if they don't use the money for their first home, they can use that money for retirement. And importantly, the government will add a 25% bonus on an annual basis. So, if you save £4,000 per year, the government will add £1,000. So, that incentive, over the course of a lifetime, could be as much as £32,000 worth of incentive. So, really worth looking at if you're under 40 and you haven't yet bought your first house.
Wall: Danny, thank you very much.
Cox: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
