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News - Tax

Written by Ray Clancy

Monday, 22 February 2010 09:19

Investors losing out on tax free returns because of ignorance, survey shows

Investors across Britain are not yet planning for the changes to ISA entitlements from April this year and risk missing out on tax free returns, according to new research.

Just 15% of Britons surveyed by NS&I’s Savings Survey said that they understand the new limits which enables individuals to save up to £10,200 per year tax free.

Indeed the research shows that a quarter incorrectly believe ISA allowances will remain the same in the new financial year, some 24% are aware new changes are due but are unsure what these will be and 10% think the ISA limit will be higher for over 50 year olds only which is no longer the case once the changes come into effect.

However, it is not just the changes to the ISA entitlement that Britons are unsure of but ISAs in general. Some 16% of those who are aware of ISAs say the reason they haven’t invested in an ISA is because they find it confusing, while one in ten people, 10%, admit that saving money in an ISA this year has never occurred to them.

‘The fact that all interest earned in an ISA remains tax free means it’s a must have product for people looking to maximise their hard earned savings. Understanding the allowances and reviewing the terms of the product is vital for savers. With less than two months to go until the end of the tax year, there is no time like the present for everyone to check their finances and plan to benefit from tax-free savings,’ said John Prout, Sales Director at NS&I.

He also pointed out that uncertainty about ISAs can result in people failing to take full advantage of their entitlement. Just 16% say they will definitely use their full tax free ISA allowance and feel it is important to do so, the survey also showed. While 15% say they will take up a proportion, but do not expect to use all of it.

Also 35% of people aware of ISAs have been put off the account in general by the current low rates on offer, while 29% say they are not planning to use their full ISA allowance because they can’t afford to.

A similar number of people, 31%, say the current climate and outlook for 2010 means they will look at other financial products, rather than ISAs. Some 29% say wider economic pressures have also led them to start diversifying their financial portfolio, perhaps a reason for not using the full entitlement.

NS&I advises investors to review their options to look for the best deal, to read the fine print including notice periods, charges and penalties and to ask questions if they are unsure because they don’t understand the jargon.