Survey highlights need for better financial education
55% of retail investors have never heard of IFISAs; just 6% invest in one
There is a stark lack of understanding and use of tax-efficient investment products among UK retail investors outside of traditional ISAs, new research from Shojin has revealed.
The FCA-regulated investment platform commissioned an independent survey among 777 UK adults, all of which have investment portfolios worth in excess of £20,000 – this includes all forms of investments but discounts their savings, pensions and property used as a primary residency.
Almost half (45%) of UK retail investors admit to not knowing the taxes they must pay on their investments, with just 40% stating that their investment strategy is tax efficient.
While 93% of respondents are familiar with ISAs, and 91% know what stocks and shares ISA are, other options remain more obscure. Half (50%) of retail investors have never heard of Exchange-Traded Funds (ETFs), and even more (55%) said the same of Innovative Finance ISAs (IFISAs).
These are the most popular tax-efficient investment products among UK retail investors:
- ISAs (45% of investors have money in tax-efficient vehicle)
- Stocks and shares ISAs (29%)
- Self-Invested Personal Pensions (18%)
- ETFs (7%)
- Innovative Finance ISAs (6%)
- Venture Capital Trusts (4%)
- Small Self-Administered Pension Schemes (4%)
Almost two fifths (37%) of retail investors said tax efficiency will play a bigger role in their investment strategies in the new financial year given 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 advisors, 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 and diversify a portfolio heavy on traditional assets. 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.”
About the research
The market research was carried out between 13th and 17th January 2023 among 2,000 UK adults via an online survey by independent market research agency Opinium. Opinium is a member of the Market Research Society (MRS) Company Partner Service, whose code of conduct and quality commitment it strictly adheres to. Its MRS membership means that it adheres to strict guidelines regarding all phases of research, including research design and data collection; communicating with respondents; conducting fieldwork; analysis and reporting; data storage. The data sample of 2,000 UK adults is fully nationally representative. This means the sample is weighted to ONS criteria so that the gender, age, social grade, region and city of the respondents corresponds to the UK population as a whole. Within this sample, 777 respondents had investment portfolios worth in excess of £20,000 – this includes all assets from bonds and currencies to commodities and stocks and shares but excludes any property that is used as their primary residency.