The new tax year is here and with it comes an opportunity to use your Individual Savings Account (ISA) allowance at the earliest opportunity.

The 2025/26 tax year began on 6 April, hot on the heels of the previous tax year ending as the clock struck midnight the previous night. Traditionally, investors tend to leave their ISA investing till the very last moment, right at the end of the tax year. Indeed, this time last year interactive investor (ii) announced that they had received their last ISA application for the 2023/24 tax year at 17 minutes to midnight on April 5th!

Early bird benefits

However, it doesn’t need to be such a mad dash, so if you’re planning to use your valuable tax-efficient ISA allowance this year, why not act sooner rather than later? It certainly makes financial sense to jump on your ISA early: by investing at the start of the tax year, you maximise the amount of time your money is working for you – almost an extra year of investment effectively. That means additional months in the market to benefit from what’s known as compounding, whereby any profit earned and reinvested themselves generate additional profits over time, and so on.

If you’re investing in the stock market (and don’t need to draw an income), those potential returns may take the form of reinvested dividend payouts as well as capital gains – boosting the power of compound growth. Crucially, your returns are not eroded by tax within the ISA wrapper, so the compounding effect is further enhanced over the long term.

To put the ‘early bird' advantage into some perspective, calculations by wealth manager Nutmeg show that if you had put £6,000 a year into a simulated medium-risk stocks and shares ISA on the first day of each tax year from 6 April 1999 (when ISAs were introduced) to 6 April 2022, you’d be 9% better off than if you’d invested the same amount on the last day of each tax year. As Kyle Caldwell, Collectives Editor at interactive investor says: “various number crunching over the years shows that if you can be an early bird ISA investor, you tend to do better than those who leave it to the end of the tax year”.

The Association of Investment Companies (AIC) has also produced some compelling statistics that provide food for thought for investors poised to take the ISA plunge. The AIC data reveals that a total of 50 investment trusts would have made their investors more than £1 million had they invested the full ISA allowance (that’s a total investment of £326,560 between 1999 and 2024, with all dividends reinvested) in the same trust each year. Noting these impressive figures, the AIC’s Annabel Brodie Smith remarked: “the structure of investment trusts offers a compelling approach for investors seeking to build long-term wealth amidst economic uncertainty”.

ISAs have played a critical role in UK investors’ financial planning since 1999. The current annual ISA allowance is £20,000, unchanged since the 2017/18 tax year, and it is one of relatively few tax-efficient investment opportunities for UK investors. Stocks and shares ISAs enable you to invest in the stock market via shares, funds or investment trusts; any capital growth is free of tax, as are dividends or interest earned. Cash ISAs are effectively tax-free savings accounts. Reforms to ISAs are on the cards, with Chancellor Rachel Reeves flagging this in her late March Spring Statement. There is speculation that the subscription limit for Cash ISAs could be reduced to encourage greater use of stocks and shares ISAs, but nothing is confirmed and there will be no changes before this year’s Autumn Budget is unveiled.

Provided you can tie your money up for at least five to 10 years and ideally longer, you’re likely to do better by choosing a stocks and shares ISA than a cash equivalent, because stock markets tend to outperform savings accounts over the long term, although of course past performance is no guarantee of future results.

Drip feed your ISA investing

Of course, most people don’t have a spare £20,000 knocking around at the start of the tax year, or indeed at the end of it. However, ISA early birds can also choose to drip-feed their investments on a monthly basis – this is known as ‘pound cost averaging’. This approach does not guarantee that your returns will be higher over time – and you must remember that investments can go down in value as well as up – but it certainly removes the risk of investing at the wrong time.

It’s a simple process to set up a regular investment arrangement. If, like most self-directed investors, you’re using an online platform to invest such as interactive investor, you should be able to set up a direct debit that pays straight into your chosen ISA investment each month. Most platforms offer regular savings from as little as £25 per month and you’ll still be able to make occasional one-off contributions too, if you find yourself in the money.

ISA ideas for everyone with Aberdeen

So, what kind of investment trust might you consider for your ISA as the new tax year dawns? That will depend on various factors, including how you feel about investment risk and whether or not you’ll need to draw a regular income from it (to supplement your pension, for instance).

Aberdeen’s stable includes a diverse range of UK and internationally focused investment trusts focused on producing long-term capital growth but also the security of a regular income; if you don’t need the income, it can be reinvested to boost returns.

As a core holding you could consider, for instance, highly regarded names such as Dunedin Income Growth Investment Trust for a UK bias, Murray International Trust for a broader remit, or abrdn Asian Income Fund for exposure to Asia’s rapidly growing markets.

If you can invest for several decades and you’re comfortable with greater volatility in exchange for the potentially higher returns available over the long-term from smaller companies and more concentrated portfolios, Aberdeen also runs several growth-oriented trusts, including abrdn UK Smaller Companies Growth Trust, as well as abrdn New India Investment Trust and abrdn Asia Focus.

You might perhaps choose to pair a steady core holding with a smaller exposure to a racier growth trust for the best of both worlds.

Regardless of how you choose to allocate your money, using your ISA allowance sooner rather than later can be beneficial.

Important information

Risk factors you should consider prior to investing:

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG, authorised and regulated by the Financial Conduct Authority in the UK.

Find out more at www.aberdeeninvestments.com/trusts or by registering for updates. You can also follow us on X, Facebook and LinkedIn.