ISA investors pay an unnecessary £80 a year to the taxman

The IMA has revealed that investors using their full ISA allowance to invest in a property fund pay £80 a year in unnecessary tax, which they would avoid in a tax-efficient fund.

Looking at property funds within ISAs, some £1.6 million a year is paid to the taxman instead of to end investors. Pension funds are also hit by this tax.

Following detailed discussions between the IMA and the Treasury, new tax-efficient funds ("tax-elected funds" (TEFs) and "property authorised investment funds" (PAIFs)) have been introduced to ensure that individual investors do not indirectly suffer corporation tax. However, TEFs and PAIFs are not yet available on many retail fund platforms.

Commenting, Richard Saunders, Chief Executive of the Investment Management Association, said: "As we approach the ISA season, it is unfortunate that ordinary ISA investors are missing out on investing in tax-efficient funds, because these funds are not yet available on many retail platforms.

"A number of managers are keen to launch tax-efficient funds but are discouraged by the current inability of platforms to carry these funds.

"We call upon all industry participants to facilitate the development of tax-efficient funds.  Investors need to demand access and advisers need to press for launches.  Platforms and administrators need to put in place the necessary systems to ensure investors no longer pay an unnecessary tax on investing."