Around 50% of UK retail investors lack knowledge about ETFs and IFISAs

New research conducted by the FCA-regulated online retail estate investment platform, Shojin, has revealed that a significant number of UK retail investors are lacking knowledge and understanding of tax-efficient investing solutions outside of traditional Individual Savings Accounts (ISAs). The research was carried out in partnership with independent market research firm, Opinium, and involved a survey of 777 UK individuals with investment portfolios worth over £20,000.

The results of the survey revealed that only 40 per cent of UK retail investors have a tax-efficient investing strategy, while 45 per cent admit to being unaware of the taxes they must pay on their assets. While ISAs and stocks and shares ISAs are familiar to 91 per cent and 93 per cent of respondents, respectively, other choices such as Exchange-Traded Funds (ETFs) and Innovative Finance ISAs (IFISAs) are less well-known, with 50 per cent of UK retail investors unfamiliar with them.

Madeleine Ingram, Director of Calculus, recently shared some tips on how UK individuals can choose the best ISAs out of the various options available. Exchange-Traded Funds (ETFs) and Innovative Finance ISAs (IFISAs) are both unfamiliar to half (50 per cent) of UK retail investors.

Some of the most popular tax-efficient investment products among UK retail investors include ISAs( used by 45 per cent of investors), Shares and Stock ISAs (29%), Self-Invested Personal Pensions (18%), ETFs (7%), Innovative Finance ISAs (6%), Trusts for Venture Capital (4 per cent), and Small Self-Administered Pension Scheme (4%).

With high inflation and a slowing economy, almost two-fifths (37%) of retail investors indicated that tax efficiency would play a larger role in their investment choices in the upcoming fiscal year.

Jatin Ondhia, CEO of Shojin emphasised the importance of investors, both sophisticated and retail alike, having a good understanding of tax implications for their investment portfolios.

The CEO added that they need to be aware of both the taxes that will be due on any gains they make and the products on the market that can enable them to minimise their tax liability.

According to Ondhia, it is clear that more UK investors will examine their investment strategies' tax efficiency more closely given the current economic environment of sky-high inflation and rising interest rates.

Ondhia also highlighted that advisors, wealth managers, and investment providers need to improve the education of products outside of traditional ISAs. The CEO of Shonjin mentioned that 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.

He predicted that there will be a change over the coming fiscal year concerning investment education on IFISA, as tax efficiency is becoming more important to investors.

What is an IFISA?

An innovative finance ISA (IFISA) is simply a tax wrapper around one or more P2P loans, providing savers with an opportunity to outpace the low-interest rates offered by cash accounts. Because of the ISA tax wrapper, any investment growth is exempt from taxes-like income tax or capital gains tax that would otherwise be due on the growth or interest.

This gives the investors the opportunity to invest in these assets with the possibility of making more money than they normally would, all other things being equal.

The market research was conducted online between January 13 and January 17, 2023, among 2,000 UK individuals by the independent market research firm, Opinium. Opinium complies scrupulously with the Market Research Society's (MRS) Company Partner Service's code of conduct and dedication to quality. In this sample, 777 respondents had investment portfolios worth more than £20,000; this covers all assets, including bonds, currencies, commodities, stocks, and shares, but does not include any real estate that is utilised as the respondents' primary residence.