Over 40% of those with stocks and shares don’t use tax free allowance

Twenty five per cent of UK adults own stocks and shares, however only 14 per cent have used their tax free Stocks and Shares ISA allowance, according to research by first direct.

When asked why they weren't using their Stocks and Shares ISA allowance 14 per cent said they didn't understand how they worked, six per cent found the application process too complicated and a further six per cent didn't even know they existed.  One in ten said they hadn't managed to use their Cash ISA limit yet, perhaps not realising that this wasn't a prerequisite for holding a Stocks and Shares ISA.
 
The research also found that 62 per cent have never transferred their ISA to another provider and only 13 per cent knew that the ISA limit increased to £11,520 from 6 April 2013 (up to £5,760 of which can be put in to a Cash ISA).
 
Andy Forbes, Head of Product at first direct commented: "I would urge all those, especially high rate tax payers, who'd like to invest in stocks and shares to ensure they take advantage of their ISA allowance to avoid missing out on potential tax savings."
 
first direct has compiled a list of ISA facts to help savers avoid confusion.

The new tax year began on 6 April 2013 and the total annual ISA allowance increased from £11,280 (2012/13) to £11,520 (2013/14).

The maximum amount that can be saved in a Cash ISA 2013/14 is £5,760, however any unused Cash ISA limit can be used for a Stocks and Shares ISA instead.

Stocks and Shares ISAs allow deposits of between £1 and £11,520 depending on the amount saved in a Cash ISA.

first direct offers two types of Stocks and Shares ISA

A Selected Investments Fund or SIF where investors can choose from 8 carefully selected funds and can decide the level of risk they'd like to take

A Stocks and Shares ISA where investors can choose their own stock market investments whilst still taking advantage of their tax free allowance.

The benefit of a Stocks and Shares ISA is that all investors, including higher rate tax payers, won't pay Income Tax or Capital Gains Tax on any increases in the value of their investment.

Every tax year there is a maximum ISA subscription, however previous tax year balances can be transferred into the new ISA account each year.

An ISA can be transferred to another provider at any time in a tax year and as many times as wished. However the yearly limit is fixed, so if £11,520 was invested with the first provider once switched no more money can be added.

The value of investments (and any income received from them) can fall as well as rise and Stocks and Shares ISA investors may not get back the money they put in. For some investments this can also happen as a result of exchange rate fluctuations as shares and funds may have an exposure to overseas markets.

Stock market investments should be viewed as a medium to long term investment (for at least 5 years).

It's recommended that investors keep enough money (around six month's salary) outside their investment portfolio.