UK taxpayers to waste as much as £4.7 billion in tax inefficiencies

UK taxpayers to waste as much as £4.7 billion in tax inefficiencies

• £4.7 billion: set to be wasted in 2014 by UK taxpayers not being tax efficient 
• £161: the average amount each individual taxpayer is set to waste
• 77%: of people admit they haven’t done anything to reduce their tax waste in the last 12 months
• But 38% of Brits think they’d be confident in tackling their tax waste without the help of a professional

New research¹ released today by unbiased.co.uk, the ‘find an adviser’ search, reveals UK taxpayers are set to waste as much as £4.7 billion this year in unnecessary tax payments. The 2014 unbiased.co.uk TaxAction research shows Brits are set to gift a massive £100 million more to the taxman, compared to 2013², by not making the most of tax reliefs available to them or by not using tax-efficient savings products.

The research looks at four key areas of tax waste:

• individual savings accounts (ISAs)
• tax relief on pension contributions
• capital gains tax (CGT)
• inheritance tax (IHT)

The £4.7 billion set to be wasted this year translates into £161 on average³ per individual taxpayer, up from £153 in 2013.

Although, 38% of the nation⁴ thinks they’d be confident in sorting out their tax planning without the help of professional advice, unbiased.co.uk’s research⁵ shows that three out of four (77%) Brits admit they haven’t done anything in the past 12 months to cut their individual tax waste figure, up from 68% last year. 

Karen Barrett, Chief Executive of unbiased.co.uk, comments: “Unbiased.co.uk’s 2014 TaxAction research shows a huge rise in the amount of tax set to be wasted this year compared to 2013. While more people are confident with the idea of ‘shopping around’ and getting the best value for food and retail goods, the same cannot be said for their finances. We are still seeing millions of UK taxpayers putting their hard earned cash into taxed saving and investment vehicles, when reliefs, allowances and better rates are available to them! 

“With so many changes to tax legislation it’s not surprising to see people burying their heads but it’s time to take action and take control of your tax burden!  Tax is an area where seeking professional advice can really add value, and not just to your pocket - a professional adviser can advise on responsible tax planning not just now, but for the long term. Those looking for advice should speak to a professional financial adviser who specialises in tax or an accountant to ensure they are being as tax efficient as possible. For a free and confidential search for a financial adviser or accountant, go to www.unbiased.co.uk.”

UK Taxpayers’ Tax Wastage 2014 – the key stats:

£2.9 billion in pension tax relief waste

• UK employees on average put away £3,260 annually into their pension, including £652 a year in tax relief from the government 
• 4.4 million UK adults are currently in employment not saving into a pension and not making use of their pension tax allowance from the government resulting in £2.9 billion⁶ 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 tax.  If you are a higher rate taxpayer the onus is on you to claim back the additional tax relief owed to you 

£1.1billion in ISAs

• 49 million UK bank account holders are set to waste a combined total of more than £1.1billion⁷ by not moving their money into tax-efficient individual savings accounts (ISAs)
• Of that wastage, £984 million can be attributed to failure to use cash ISAs and a further £160 million in stocks and shares investments not held in ISAs

£530 million in inheritance tax waste

• £530 million wasted in inheritance tax (IHT) by individuals not placing life protection policies ‘under trust’
• 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 27%⁸ of people would be confident in tackling IHT planning without the help of a professional adviser

£154 million in Capital Gains Tax

• £154 million in unnecessary capital gains tax (CGT) payments this tax year
• 2014 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 £10,900.  Any gain above the allowance is charged at 18% for lower and 28% for higher rate tax payers

ENDS

Notes to editors:

1. TaxAction Report 2014 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.

2. 2013 total tax waste is £4.6 million TaxAction Research 2013: http://www.unbiased.co.uk/tax-action-2013-infographic

3. Based on the average number of taxpayers, according to HMRC: http://www.hmrc.gov.uk/statistics/taxpayers/table1-4.pdf.This calculation is based on the overall amount of tax wasted across different groups of taxpayers, and while not every single taxpayer is affected in the same way, the average amount of £161 has been provided to show how much could be wasted across the UK population.

4. Unbiased.co.uk Get Advised research: carried out by Opinium Research between 8 – 11 October 2013 among 2,000 nationally representative UK adults aged 18+

5. The unbiased.co.uk web poll asked: Have you done anything to reduce your tax liabilities in the last 12 months? 78% said no. (base;154 consumers visiting unbiased.co.uk between 28 January – 13 February)

6. Based on desk research by Opinium Research: 4,436,000 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 4.4 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.

7. 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 £5,695 per household, the additional tax benefit could amount to £160 million.

8. The wastage figure is based on 49 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. 

9. 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 £3,386 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 £154 million. 

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