It has been reported that approximately 33 million people in the UK have failed to save or invest any money into tax-free savings accounts. This accounts for around two-thirds of British adults who are neglecting this investment opportunity. Current regulations allow individuals over the age of 18 to save up to £15,000 in a cash ISA, a stocks and shares ISA or a combination of the two.
Moreover, in the new tax year starting the 6th April, individuals will be able to set aside £15,240 and without being taxed on interest. However, research conducted by AXA Self Investor has revealed that two thirds of people haven’t taken advantage of the offer. The question is, why?
Lack of Knowledge
The primary reason is a simple lack of knowledge. Approximately 54% of said individuals had no idea what the ISA limit was, with many typically leaving up to three fifths of their annual allowance untouched. This means that households can be paying million in tax, just because they are not utilising their full ISA limit.
Experts have also highlighted other existing offers as a reason for people to shun cash ISAs, such as low interest rates on cash accounts. Many of them believe that the disillusioned cannot be blamed for using their cash to pay off debts or exploit the system with high interest current accounts. But these interest rates will inevitably rise. On the other hand, any cash placed into an ISA now will remain tax free continuing on into the future.
Lack of Clarity
As with anything else, a lack of knowledge equals a lack of clarity and this is certainly true when it comes to the issue of high fund charges. A lack of concern and interest has permitted the investment world to steadily pickpocket investors with ridiculously high fund charges for years and this apathy is largely due to complicated fee systems.
On the bright side the situation is getting better. Regulators have enforced a new system in recent years which makes things a lot clearer in terms of who you pay and what you pay for. So now we know that one fee goes to a fund manager (roughly 0.75%) and another cost is applied by the broker (typically 0.25%-0.5%). The latter is paid in order to secure a place to hold the fund alongside others from different companies. This improvement in clarity has caused an increase in competition between brokers and has sent charges spiralling.
Fill Your Pot before April!
So act fast and get in there before April this year if you want to take advantage of a tax-free ISA account. Peer-to-Peer will soon become eligible for New ISA inclusion. For our ISA updates, submit your email here.