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Britons set to waste £9 billion in unnecessary tax payments this year – yet 33% claim tax policies could sway their election vote

• Unbiased.co.uk’s exclusive Tax Action report reveals Britons are set to waste £9 billion in unnecessary tax payments this year

• Biggest tax wastage comes from Tax Credits at nearly £4 billion and Inheritance Tax at nearly £2 billion

• Despite one in three Britons (31%) predicting substantial tax hikes post the General Election, 86% admit doing nothing to reduce their tax burden

• A quarter (25%) believe couples with young children will be hit hardest by tax hikes – nearly one in eight (12%) think retired couples will suffer most

• To prepare for an increased tax bill, nearly a third of Brits (30%) have cut down on luxuries such as eating out, theatre and cinema trips

• Apathy still remains with over half (53%) doing nothing to prepare for tax increases

• Visit Unbiased.co.uk to take Tax Action and find an independent financial adviser near you

With election fever on its way - and with tax a key topic on the agenda - exclusive research by Unbiased.co.uk, the professional advice website, reveals a whopping £9 billion* is set to be wasted in unnecessary tax payments this year. At the same time, however, a third of Brits (33%) will be considering tax policies before voting in this year’s General Election, suggesting consumers are blissfully unaware of their tax apathy and the billions it costs them in reality.

Unbiased.co.uk’s latest Tax Actionreport – now in its 18th year – reveals Britain’s tax wastage has reduced by 9% after reaching a peak of £10 billion last year**.  Yet conversely, a massive 86%*** of Brits still admit to doing nothing to reduce their tax burden.  The largest areas for tax wastage are Tax Credits, where consumers stand to waste nearly £4 billion this year, followed by Inheritance Tax at nearly £2 billion.  (See Table 1 below for full tax wastage breakdown).

Karen Barrett, Chief Executive of Unbiased.co.uk, comments: “During 2009, financial markets were in turmoil and cash strapped consumers were feeling the full force of the recession.  And while things may be starting to look up in 2010, it is still vital for everyone to be looking at their finances and making sure they’re not throwing money away unnecessarily.  A key way to do this is taking advantage of the tax incentives, reliefs and credits available to each person - and to avoid being hit by fines for basic mistakes.  Our annual Tax Action report has revealed an estimated £9 billion will be wasted this year in unnecessary tax payments.  This equates to an average of £186 for each UK taxpayer – although this sum varies greatly depending on lifestage and individual financial circumstances.” 

Election fever predicts ‘taxation nation’

Despite the fact consumers are passively throwing away a vast annual tax wastage of £9 billion, the research goes on to reveal how Britons are preparing themselves for ‘taxation nation’, with nearly a third (31%) expecting taxes to rise substantially after the General Election.  A quarter of Brits (25%) believe couples with young children will be hit hardest by tax hikes, and just over one in ten (12%) think retired couples will suffer the most. 

Consumers cut back in preparation for tax hikes

To prepare for an increased tax bill, nearly a third of cash strapped Brits (30%) have cut down on everyday luxuries such as eating out in restaurants, and trips to the theatre and cinema.  A fifth of consumers are spending less on holidays (19%) and a further fifth are shopping in ‘cheaper brand’ supermarkets (20%).  However, apathy remains rife as over half (53%) are doing nothing to prepare for tax increases.

Unbiased.co.uk’s Regional Tax Waste Map

The Tax Action report reveals Greater London and the South East is the UK’s tax waste capital, with over £2.6 billion wasted in tax - £1.2 billion of which is wasted in the Big Smoke alone.  On the other hand, Northern Ireland has the lowest tax wastage with only £219 million being lost.

Karen Barrett, Chief Executive of Unbiased.co.uk, continues: “Whilst it is encouraging to see our annual tax wastage is set to go down by 9% this year, £9 billion is still a colossal amount to be lost through error and avoidable circumstances****.  Furthermore, this decrease in tax wastage could also be down to the shrunken economy – with simply less disposable income for the tax man to get his hands on.  Tax can seem a complex issue for many, and even more so in the current environment as people reassess their finances and the way they handle their expenditure.   An independent financial adviser can assess your whole financial position and ensure you are being as tax efficient as possible.  It is vital that people take Tax Action now and save money, so hopefully we can see our annual tax wastage continue to decrease.  To find a local IFA near you, visit Unbiased.co.uk and use our free and confidential ‘find an IFA’ search.”

Table 1: Tax Wasted Totals

 

		Error****	Avoidable****	Total
		£m	£m	£m
1	Tax & personal allowances	301	27	328
2	ISAs	16	20	36
3	Gilts/National Savings	30	85	115
4	Capital Gains Tax*	-	516	516
5	Charities and gifts	394	477	871
6	Pensions	-	742	742
7	Inheritance	136	1,831	1,967
8	Self assessment	310	132	442
9	Share Incentive Plans	-	141	141
10	Tax Credits	3,940	-	3,940
11	Childs Trust Fund	18	-	18
Totals		5,145	3,971	9,116

 

*           CGT error could be mitigated, but only by action before disposal

Source: RAKM for IFA Promotion

Tax Saving Tips from Unbiased.co.uk’s IFAs

ISAs - Adrian Lowcock, Bestinvest

"Any interest earned by your savings in a cash ISA are received free of income tax, so a basic rate taxpayer can save 20% on Income Tax, whilst a higher rate tax payer can save 40% - so anyone with savings not already in an ISA can benefit right away from the tax relief. For those investing in a stocks and shares ISA, the main benefits are no tax on Capital Gains, which could save you 18%, and there is no further tax to pay on income. The specific tax-saving on income depends on your choice of investment and whether you are a basic rate or a higher rate tax-payer. But investors need to do more than just take out their ISA – i.e., don’t just buy a top performing fund. Actually take the time to understand why a fund has performed well. Is it in a booming, but potentially high risk, sector? Or was it due to an exceptional manager who no longer runs the fund? After careful consideration, if you’re then still attracted, remember to make sure that the fund meets your investment objectives."

Pensions – Jason Witcombe, Evolve Financial Planning

"Delay your pension contributions! With the exception of very high earners, you receive tax relief on pension contributions at your marginal rate of tax. Higher rate tax starts at £43,875 p.a. for most people. If your income is £25,000 p.a. you receive 20% tax relief - a £1,000 pension contribution costs you £800. If your income is £50,000 p.a. you receive 40% relief with a £1,000 pension contribution costing you £600. A 20% taxpayer who expects to become a 40% taxpayer soon might consider delaying contributions. Naturally, make sure that you pay into your employer pension scheme in the meantime."

Tax & Personal allowances - Dan Clayden, Clayden Associates

"It may seem obvious, but make sure you arrange your income to take full advantage of your personal allowance. Good planning can help with this; for example, by remembering a couple will have two personal allowances and so between them can receive the first £12,950 of their combined income effectively tax-free. An IFA will be able to recommend other ways in which you can arrange your finances, to ensure that this tax-free allowance isn’t wasted. We also see the introduction of a new ‘super’ rate of income tax and the removal of personal allowances from higher earners in April. This will mean that tax wrapper selection for investments will become even more important, as the introduction of higher rates of tax will widen the effect on returns seen between the most and least tax efficient wrappers."

Child Trust funds - Peter McGahan, Worldwide Financial Planning

"A Child Trust fund grows free of tax on income and gains until age 18 – after which it is taxed in the normal way. Parents can invest £1,200 per year into this scheme. Eligible children receive £250 voucher from the Government which should be invested as soon as possible to ensure they receive the maximum tax saving gains on the account. For those parents concerned about the fact their children will have automatic control over this asset at age 18, parents can look to other means such as ISAs, unit trusts/Oeics or offshore bond".

Capital Gains Tax – Danny Cox, Hargreaves Lansdown

"Capital gains tax is currently charged at a flat rate of 18% on the profits or gains made when you sell (or transfer) assets, the most common being shares, unit trusts and investment property. If the profit is less than the annual capital gains tax allowance of £10,100 there is no tax to pay. Saving capital gains tax is simple - spread taking your profits over more than one tax year to use more than one capital gains tax allowance. Finally don’t forget your spouse’s allowances. If you hold a joint asset you can use both of your capital gains tax allowances, meaning that profits of up to £20,200 can be realised without creating a capital gains tax bill."

Charities and gifts – Jason Butler, Bloomsbury Financial Planning

"Making charitable donations through the gift aid system is very tax efficient for both the charity and individuals who are higher rate tax payers. The charity can gross up the net gift by 28% and the individual obtains the difference between basic rate and higher rate tax via their tax return. Such gifts also fall out of one’s estate for inheritance tax (IHT) purposes. In addition, gift aid contributions can be used to reduce ‘relevant income’ below £130,000 in the tax year of gift and as such might enable an individual to avoid the anti-forestalling rules, which otherwise restrict higher rate tax relief on pension contributions to £20-30,000 in 2009/10 and 20010/11. The Charities Aid Foundation offers a CAF Account to receive gift aid donations, and any decisions on which charities to help can be deferred to a later date."

Inheritance - Gordon Bowden, Quainton Hills Financial Planning Ltd

"The wealthy with surplus income and assets should decide how to leave a legacy to the next generation and plan for tax efficiency accordingly. Investing in ‘tax efficient’ vehicles such as ISAs and National Savings will not be efficient if 40% of the capital is lost in Inheritance Tax on death. If surplus income is simply accumulated the cumulative tax rate could be 70% on death - up to 50% income tax followed by 40% Inheritance Tax. Individuals with a desire to leave a legacy must consider this and use Inheritance Tax strategies including the normal expenditure out of income exemption."

Gilts - Stuart Fowler, No Monkey Business Limited

"Index Linked Gilts are a more tax-efficient way to be compensated for inflation than nominal interest contracts. Most of any nominal yield, whether deposit interest or coupon payments on a bond, is accounted for by the market’s required compensation for expected inflation. It is taxed as income. If you were constrained to spend only the real interest rate you would add the rest back to the capital but only after HMRC had taken a bite. For ILGs most of the inflation compensation is added to capital and charged neither to income nor capital gains tax."

Check out how much you could be saving by being more tax efficient with Unbiased.co.uk’s tax waste calculator.

ENDS

Notes to editors

*TaxAction 2010 report produced for IFA Promotion by RAKM, based on a specially commissioned analysis of Inland Revenue and a range of other official data sources.

**Past five years tax wastage figures

 

	Error****	Avoidable****	Total
	£m	£m	£m
2010	5,145	3,971	9,116
2009	5,938	4,074	10,012
2008	3,277	6,024	9,301
2007	3,989	3,922	7,911
2006	3,866	3,620	7,486

*** Additional research conducted online by Opinium Research among a sample of 2,065 UK adults between 16th and 19th February 2010. Data has been weighted to nationally representative criteria.

**** Note:	Figures may not always add up to the totals owing to the effect of rounding of underlying amounts and percentages
Error waste:	Refers to that tax, which is only paid as a results of consumers’ error or omission – much of this can be reclaimed, once the individual has identified the waste
Avoidable waste:	Estimate of the tax which individuals would save if they made changes to the way in which they manage their finances. Savings can either be made by simply changing the product used to a more tax efficient alternative or by changing the way in which the money is managed
Total waste:	Error waste + Avoidable waste

Source: RAKM for IFA Promotion

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Notes to Editors

Unbiased.co.uk, the professional advice website

Unbiased.co.uk is the free and confidential UK-wide search service matching consumers with the most appropriate local professional advisers for their needs.  In 2008, Unbiased.co.uk fulfilled over half a million searches for local, professional advice. 

The portal currently houses three professional advice searches: ‘find an IFA’, ‘find a mortgage adviser’, and ‘find a solicitor’, and is inviting accountants to sign up for its ‘find an accountant’ service.  These searches enable consumers to find relevant professional advisers by postcode, area of specialism and payment method, amongst other options. 

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