Charles Stanley, the UK investment management company, has published new research revealing that an alarming amount (24 per cent) of ISA savers are not aware that there is a tax deadline for their £20,000 ISA allowance. Considering the end of the tax year is just around the corner (5 April), thousands of savers could be missing out on accruing tax-free interest on their savings.
According to the Charles Stanley research, younger savers are most in the dark when it comes to the ISA deadline. Nearly a third (31 per cent) of Gen Z’s are unaware there is a tax deadline for their yearly ISA allowance, while more than a quarter (27 per cent) of millennials say the same. Twenty-two per cent of Generation X are unaware of the deadline, and 11 per cent of Baby Boomers also reveal they don’t know about the ISA deadline.
The lack of awareness on ISA deadlines is not solely reflective of age. Even those who have built up their savings pot to more than £20,000 are unaware. More than one in 10 (13 per cent) who have more than £20,000 in savings are not aware there is a tax deadline for their yearly ISA allowance.
Twenty-one per cent of those with savings between £15,001 and £20,000 are also not aware of the ISA deadline, while 25 per cent of those who have a savings pot between £10,001 and £15,000 are not aware, meaning they could be losing out on earning tax-free interest.
Rob Morgan, chief investment analyst at Charles Stanley, comments: “ISAs have many benefits for savers and investors – they’re tax-efficient, easily accessible, can be used for short and long-term goals, and can also be used as a bridge for retirement savings.
“They’re the Swiss army knife of financial planning and can be used for nearly everyone’s needs and priorities. Yet there are clearly many who don’t know about the ISA deadlines in place. This raises concerns over how many are taking true advantage of their ISA allowance to maximise their savings and build superior compound gains.
ISA season
The run-up to the ISA deadline – also known as ‘ISA season’ – can have some influence over what people do with their savings. It aims to raise awareness and encourage savers to utilise the tax-free vehicle, whether it’s opening up an ISA or topping up their savings to try and maximise their annual ISA allowance of £20,000. This has been all the more newsworthy this year, with rumours about seismic changes to the cash ISA circulating.
Commenting on this, Morgan added: “With rumours having also floated around that the Chancellor could make changes to cash ISA limits, it’s even more important that consumers don’t let their savings sit idly and ignore this year’s deadline.”
Last-minute rush?
When thinking about ‘ISA season’, 28 per cent of ISA holders say it prompts them to top up their cash ISA just so their savings are protected, while 20 per cent top up their investment ISA so their investments are protected from paying tax on them.
Seventeen per cent say that their financial adviser encourages them to contribute more into their ISA, and a further 15 per cent say their financial adviser sorts their investments on their behalf, and they trust them to have used their ISA allowance.
However, nearly one in five (18 per cent) say they know they can’t fulfill the full ISA allowance of £20,000, so don’t pay any more into their ISA than they already do. Even 17 per cent of those who have savings between £15,000 and £20,000 say they know they can’t fulfill the full ISA allowance, so don’t contribute more than they need to.
Seven per cent say they forget about the deadline, and then rush to top up their ISA(s) before it’s too late, particularly as ISAs work on a ‘use it or lose it’ basis for each financial year.
There are some (15 per cent) who say that ‘ISA season’ has no impact on them, whether that’s referencing their overall savings behaviours, utilising the full ISA allowance, or thinking about the yearly deadline. A third (34 per cent) of ISA savers say they continue to pay into their ISA as usual on a regular basis.
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