How much money is the UK taxpayer wasting? We bring you the eye-watering figures in TaxAction 2015, the latest in our best known and longest-running campaign.
This year the public is predicted to pay up to £4.9 billion more tax than required, by not taking advantage of the available tax planning options. We’ll be taking a close look at the key problem areas, including:
• individual savings accounts (ISAs)
• tax relief on pension contributions
• capital gains tax (CGT)
• inheritance tax (IHT)
By failing to use simple, readily available tax efficiencies, taxpayers are losing a substantial chunk of their income unnecessarily.
Tax waste in numbers
- 45% of savers think they are already paying as little tax as they should
- 74% of taxpayers admit they haven’t done anything to reduce their tax waste in the last year
- £165: The average amount each individual taxpayer is set to waste
- £200 million: How much more Brits will be gifting to the taxman this year, compared to 2014
In general the picture seems to be getting worse, not better, even though slightly fewer people are taking no action to reduce tax waste (last year the figure was 77%). The amount lost per household is up from £161 last year, amounting to an additional £200m of wastage.
Where is all this money being lost?
Anyone paying towards a pension receives tax relief on their pension savings, according to the rate at which they pay tax. For basic rate taxpayers this is 20 per cent, rising to up to 45 per cent for higher rate taxpayers. However, there are currently 4.2 million adults in the UK who are not saving into a pension, and so not making use of their pension tax allowance. This amounts to £2.9 billion worth of tax relief that is going unused.
Also, higher rate taxpayers need to claim back the additional tax relief that is owed to them. Failure to do this means more tax paid unnecessarily.
Any gain on an individual savings account (ISA) is free of tax. However, many UK bank account holders either fail to use ISAs at all, or fail to use their maximum annual allowance (£15,000 for the 2014/15 tax year). A total of more than £1.3 billion is being wasted this way, £1.2 billion of which is due to a failure to use cash ISAs, and a further £104 million through stocks and shares investments not held in ISAs.
Inheritance Tax (IHT)
People are wasting a total of £550 million by not placing their life protection policies under trust. Failure to do this can 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. You can find out where your estate could be vulnerable to IHT, and prepare the right questions to ask a financial adviser with the help of our inheritance tax checklist.
Capital Gains Tax (CGT)
Every UK taxpayer has an annual CGT-free allowance (£11,000 in the 2014/15 tax year). Any gain above the allowance is charged at 18% for lower rate tax payers, and at 28% for higher rate taxpayers. One of the main causes of CGT waste is, again, the failure of individuals to use ISAs to shelter their investments from tax. A total of £157 million was wasted this tax year in unnecessary CGT payments.
How to be tax efficient
Being tax efficient is not about avoiding anything – it simply means making full use of the allowances that have been provided for you. To get fully up to speed on these, and find out all the ways in which you could make use of them, talk to a financial adviser or an accountant. You can find one using our search here.
You can also download our mini tax guide that reveals easy ways to cut your tax bill.