Most common tax misconceptions about the ISA

Most common tax misconceptions about the ISA

With frozen allowances and high interest rates dragging more individuals into the tax net, many ISAs are becoming a tax-efficient option to invest their money. Shawbrook's new cash ISA accounts have seen a significant increase in January to May 2023 compared to the same period last year. While these accounts remain a popular investment choice among British consumers, there are a few misconceptions about how they work. Rob Morgan, chief investment analyst at Charles Stanley, said: Despite their popularity and having existed for more than two decades, there is clearly much confusion about how they work.

According to research by Charles Stanley, nearly three-quarters don't know what a flexible ISA is, with more than a quarter having never heard of one. Up to 11 percent think that a flexible ISA allows people to increase their ISA contribution, while 20 percent think it allows them to switch their cash ISA to a stocks and shares ISA or vice versa. It allows nine percent to transfer their ISA to someone else. Express Money spoke to experts to find out the rules of the ISA, based on research gathered by the wealth management firm on the most common ISA misconceptions. Up to 19 percent ofsurveyed survey respondents believe people can only have one ISA at a time.

Rowan Harding, financial planner at Path Financial, said people can have as many ISAs as they want and spread their £20,000 tax-free personal allowance across these. You have the flexibility to split your tax-free allowance across any number of ISAs and ISA types as you want, he said. You can invest £10,00 in a Stocks and Shares ISA, and then the remaining £10,10,000 in a Cash ISA. The decision to use your investment for various purposes and periods is a useful choice for those who wish to use it for various purposes and different periods of time. Up to 16 percent of savers are uncertain about the annual contribution rules of ISAs, most pertinently thinking they can use last year's allowance to save even more tax-free this year.

Some banks offer flexible ISAs that not only allow withdrawals but also enable savers to replace the money without losing any of their annual allowance. It's an excellent way to maximise your allowance, easily access your cash when you need it, and easily replace the money back into ISA before the end of the tax year. Up to 17 percent of savers believe ISAs are the only tax-efficient savings option.

While ISAs are often the first stop for investors looking to save tax, pensions are'more tax efficient than ISAs' for many people, experts at Charles Stanley have said. Mr. Stanley said he does not tax gains or income on investments in a pension. While there may be tax to pay when you take money out and you have to wait until your retirement age to do so, they tend to be highly advantageous for those investing for a comfortable retirement. The interest earned within an ISA is taxed - nine percent of people believe interest earned within the ISA gets taxed. t taxable, and there is no capital gains tax to pay on profits, he said.