- On Sunday 31 May 2015, Britons become ‘tax free’ after 150 days of working for the taxman
- UK taxpayers are still set to waste as much as £4.9 billion by not properly planning for their tax allowances
Sunday 31 May 2015 marks Tax Freedom Day1, which means that after 150 days of 2015, UK taxpayers will effectively be putting their wages into their own pocket, rather than paying it to the Treasury.
It has been calculated by the Adam Smith Institute that on Tax Freedom Day the average Briton will have earned enough money to cover all the National Insurance, VAT, fuel duty, and other taxes that they owe in 2015. This year’s Tax Freedom Day falls one day later than it did in 2014.
Vince Smith-Hughes, Head of Business Development at Prudential, comments: ‘Tax freedom day is a creative way to remind people about the importance of the tax contribution they make while also reminding them to take the appropriate steps to ensure they pay the right amount.’
Karen Barrett, chief executive of unbiased.co.uk comments: ‘Although Tax Freedom Day is only a theoretical point in the calendar, it does help remind people of the tax burden we all have to manage every year, and that we should be taking steps to keep this as low as possible. Our TaxAction research with Prudential has shown there are a number of tax breaks that people are entitled to, but are not taking advantage of, leading to a national tax wastage of over £4.9bn2.
‘There are simple steps you can take to ensure you are being as tax efficient as possible and bring forward your own personal Tax Freedom Day. Many UK taxpayers are saving money into taxed saving and investment products, when they could be making the most of substantial reliefs, allowances and better rates. There are clearly some tax payments that cannot be changed, but people should make sure they are not unnecessarily wasting their earnings, and use this day as a reminder to take action on their taxes.
‘Nearly three quarters of people (74%) said they have done nothing to reduce their tax waste in the past year, but by seeking professional advice, they could be seeing a real difference in their savings. A financial adviser or accountant will be able to inform you of all your options, and help guide you towards the products and allowances that are part of efficient and responsible tax planning. For a free and confidential search for a financial adviser or accountant, go to www.unbiased.co.uk.’
The nation’s tax wastage 2015 – the key statistics:
£2.9 billion in pension tax relief waste
- UK employees on average put away £3,490 annually into their pension, including £698 a year in tax relief from the government
- 4.2 million UK adults currently in employment are not saving into a pension and not making use of their pension tax allowance from the government resulting in £2.9 billion3 in tax relief set to remain unused this year
- Anyone paying towards a pension receives tax relief on their pension savings at 20% and up to 45% according to the rate at which they pay income tax. Higher rate taxpayers will have to claim back the additional tax relief owed to them.
£1.3 billion in ISAs
- 55 million UK bank account holders are set to waste a combined total of more than £1.3 billion4 by not moving their money into tax-efficient individual savings accounts (ISAs)
- Of that wastage, £1.2 billion can be attributed to failure to use cash ISAs and a further £104 million in stocks and shares investments not held in ISAs
£550 million in inheritance tax waste
- £550 million wasted in inheritance tax (IHT) by individuals not placing life protection policies ‘under trust’5
- Not placing it under trust could reduce a £100,000 life insurance payout by as much as £40,000 if an individual’s total estate is worth more than £325,000
- Only 22% of people say they would not seek professional financial advice when tackling their IHT planning
£158 million in capital gains tax
- £1586 million in unnecessary capital gains tax (CGT) payments this tax year
- 2015 unbiased.co.uk TaxAction research shows one of the main areas of CGT waste occurs from people not using ISAs to shelter investments from any tax liabilities
- Each UK taxpayer has an annual CGT free allowance, which for the current tax year stands at £11,000. Any gain above the allowance is charged at 18% for lower and 28% for higher rate taxpayers
Notes to editors:
- Tax Freedom Day is a floating date calculated every year (from 1 January) by the Adam Smith Institute: see www.adamsmith.org for details.
- The wastage figure is based on 55 million ISAs that could be opened using current eligibility criteria and the additional interest generated by a cash ISA compared to a standard bank account.
- Based on latest available HMRC figures it is estimated that a share of 13 per cent of CGT paid on all assets disposed has been paid on the disposal of shares. Applying this percentage to the latest available figure of £3,462 million results in CGT paid on shares, if more than a third of this was put into an Individual Savings Account this gives an avoidable waste of £158 million.
- TaxAction Report 2015 has been produced by Opinium Research on behalf of unbiased.co.uk. All figures are based on calculations done on unrounded values to guarantee accuracy; text paragraphs display rounded figures. Survey results come from an Opinium online survey, commissioned by unbiased.co.uk, of 2,003 UK adults aged 18+ carried out between 14th and 17th November 2014.
- Based on desk research by Opinium Research: 4,222,200 adults in the UK are currently in employment and not contributing towards a pension however, based on their age and earnings, very likely considering contributing towards a pension. Multiplying those 4.2 million adults with the average annual income tax savings of £652, results in a total avoidable waste of £2,892,272,000 or £2.9 billion.
- One million UK households keep stocks and shares outside an ISA at the moment. If they converted these into the average stocks and shares ISA investment of £6,167 per household, the additional tax benefit could amount to £104 million.
For more information contact:
Anna Schirmer/ Sarah Tye/Calum MacDougall, Lansons: 020 7294 3682
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