The latest figures released from the unbiased.co.uk/TaxCalc 2013 Tax Action research1 reveal that UK taxpayers are set to gift a whopping £4.6 billion in unnecessary tax to the taxman this year. Now in its 21st year, the 2013 Tax Action research looks at four key areas of tax waste: Individual Savings Accounts (ISAs), not making the most of tax relief on pension contributions, Capital Gains Tax (CGT) and Inheritance Tax (IHT).
The overall tax waste mountain translates into £153 on average2 being wasted per individual taxpayer, but despite that figure, unbiased.co.uk’s latest poll shows that 7 in 10 (68%) people state they haven’t done anything this year to tackle their individual tax waste figure.3
Drilling into 2013 the tax waste mountain
To take a look at our Tax Action 2013 Infographic which drills into the consumer tax waste mountain.
Snapshot of ISA wastage:
Use your ISA allowance before 5th April
The unbiased.co.uk/TaxCalc 2013 Tax Action research shows that savers could be losing out on £1.3 billion of extra money by not making use of cash ISAs this year, instead putting their money in savings accounts where any interest generated is taxable. The £1.3 billion potential extra money includes £311 million estimated tax payable on interest earned, which could be avoided by utilising ISAs, as well as around £984 million additional interest which could be earned from the better average rates available on ISA accounts. 4
Following the same formula, the research also reveals that a further £1.3 million is being wasted. The research is based on an extra 145,000 Junior ISAs that could be opened and the average interest rate they could be earning, revealing that at the basic rate of tax £1.3 million is being wasted by those eligible to subscribe, which could be avoided by utilising ISAs.
But taxpayers are also missing out on tax breaks available with stocks and shares ISAs – 1.6 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 £5,483 per household, the additional tax benefit could amount to £62 million.
Snapshot of pension relief waste:
Make the most of your pension contributions
The research shows that nearly 4.3 million people (not currently paying into a pension but who would potentially consider it) are currently leaving £2.6 billion of income tax relief on pension contributions unused5.
The latest HMRC figures show the average pension contribution made by individuals per year is £3,010. Based on this level of contribution, employees could boost their pension pot by as much as £602 each and £2.6 billion collectively, simply by taking advantage of tax relief on pension contributions, and this is just for basic rate payers. Anyone paying towards a pension receives tax relief on their pension savings at 20% and up to 40% or 50% according to the rate at which they pay tax. The tax relief on pension contributions is even more important if you are a higher rate taxpayer where the onus is on you to claim back the additional tax relief owed to you.
Snapshot of CGT waste:
Take Tax Action to reduce your CGT bill:
UK taxpayers could be wasting as much as £171 million in unnecessary capital gains tax (CGT) payments this tax year, by not making use of tax efficient strategies and allowances available to them. CGT is a charge that arises from the disposal of assets that have increased in value. This tax does not apply on the sale of your primary residence or your car, but gains made on the sale of shares or buy-to-let properties as well as some other kinds of assets are taxable. Each UK taxpayer has an annual CGT free allowance, which for the 2012/2013 tax year currently stands at £10,600. Any gain above the allowance is charged at 18% for lower and 28% for higher rate tax payers.
Figures from the 2013 unbiased.co.uk/TaxCalc Tax Action research show one of the main areas of CGT waste occurs as a result of people not using ISAs to shelter their investments from any tax liabilities. The ‘disposal’ (i.e. a sale or gifting) of stocks and shares outside ISAs is usually liable for CGT and any gains made will count towards your annual CGT allowance.
Snapshot of IHT waste:
Careful tax planning could save £472 million in inheritance tax
In order to avoid losing money in inheritance tax, individuals taking out life protection specifically to provide for their heirs should consider placing their policy ‘under trust’, thereby removing the asset from the estate. This will ensure the payout goes to the person, or people intended, rather than the taxman - 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, the current inheritance tax-threshold for individuals.
Karen Barrett comments: “The message is clear – take time to understand your tax position, make the most of tax reliefs and allowances available to you and ensure that you are being as tax efficient as possible. Tax is an area where seeking professional advice can really make a huge difference to your pocket. Taxpayers looking to reduce their tax liability should look to enlist the help of a tax specialist.
“A financial adviser specialising in tax advice or an accountant can advise you and help you mitigate your tax liabilities, by helping you make use of available reliefs and put in place sensible tax planning steps. For a free and confidential search for a financial adviser or accountant, go to www.unbiased.co.uk.”
Tracy Ebdon-Poole, Chief Executive of TaxCalc says: “Tax can be one of the most complex and confusing areas to navigate and our report clearly shows that as a nation we are struggling to be as tax efficient as we could be. While the way tax impacts on our lives will differ from situation to situation, it is important that everyone takes ‘tax action’ and checks whether there are any areas where they could improve their tax efficiency.
“Our easy-to-use software is designed to support advisers and their clients. We passionately believe in helping people take control of their tax affairs and ensuring they pay only what they owe.”
ENDS
Notes to editors:
For more information contact:
Anna Schirmer/ Emily Falla/ Maddy Morgan Williams, Lansons Communications: 020 7294 3682
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Unbiased.co.uk is the UK's most comprehensive free professional adviser search website, focused on empowering users with the resources they need to make better informed financial and legal decisions. We not only help consumers and businesses find the best adviser for their needs from over 20,000 IFAs, financial advisers, mortgage advisers, solicitors and accountants listed on our search but we also help them research the market by providing relevant information and tools. At unbiased.co.uk we like to be transparent about what we do and aim to provide the easiest way for consumers to find and compare advisers meeting their requirements.
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About TaxCalc
Winners of the Software Satisfaction Awards for the last 5 years running (2008, 2009, 2010, 2011, and 2012), TaxCalc is the UK's leading brand of Self Assessment Tax software.
TaxCalc believe that creating award-winning software takes more than a team of technical minds. They believe passionately in developing software products that are simple to use, beautifully designed and offer exceptional value for money.
Their UK-based Support Team are on–hand to offer free telephone and email support if required. They are constantly seeking to improve their software and release free feature-rich updates throughout year. All of their products are available for purchase and download from the website taxcalc.com. They have always believed in making their prices transparent, with no hidden extras. TaxCalc offers straightforward, affordable, customer-centred and comprehensive tax and accountancy software. Whether you’re a professional or an individual, TaxCalc works for you.
TaxCalc's Secure Internet Filing confirms instantly that the return has been received by HMRC, that the data has been captured and that the calculations agree. Tax refunds, if they are due, are also paid more quickly if the return is filed online.
For more information about TaxCalc contact: Tracy Ebdon-Poole / Alex Rado: 0118 936 4800
Category: Tax action Tagged: Tax Relief
