Investors lack knowledge of investment tax opportunities

17 April 2023

UK retail investors lack knowledge on investment products outside of traditional ISAs, according to research from Shojin.

The investment platform surveyed 777 UK adults with investment portfolios in excess of £20,000 and said almost half (45%) admitted to not knowing the taxes they must pay on their investments. Just two fifths (40%) stated that their investment strategy is tax-efficient.

While 93% of respondents are familiar with ISAs, and 91% know what stocks and shares ISAs entail, other options remain more obscure. Half (50%) of investors said they had never heard of ETFs, and 55% said the same of Innovative Finance ISAs.

ISAs remain the most popular tax-efficient investment product among UK retail investors, with 45% of investors choosing to put their money in an ISA and 29% opting for a stocks and shares ISAs. Just under a fifth (18%) use self-invested personal pensions but the number falls drastically to just 7% for ETFs and 6% for Innovative Finance ISAs. An even smaller number invest in venture capital trusts and small self-administered pension schemes (4% respectively).

However, 37% of retail investors said tax efficiency will play a bigger role in their investment strategies in the new financial year as a result of high inflation and the economic slowdown.

Jatin Ondhia, CEO of Shojin, said: “Tax efficiency is not a sexy subject, but it’s essential investors, sophisticated and retail alike, have a good grasp on tax implications for their investment portfolios. They must understand both the taxes that will be owed on gains they make as well as the products available on the market that could help keep their tax bill as low as possible.

“The current economic climate of sky-high inflation and rising interest rates is clearly going to encourage more investors to take a deeper look at how tax-efficient their investment strategies are. But our research shows that there’s lots of work to be done by advisers, wealth managers and investment providers to improve education of products outside of traditional ISAs.

“Innovative finance ISAs, for instance, offer a tax-efficient wrapper for those looking to invest in the peer-to-peer finance sector. Awareness of this seven-year-old product is low but I expect this will change during the new financial year, as tax-efficiency becomes more of a focus for many investors.”

Professional Paraplanner