UK consumers set to waste £4.6 billion in unnecessary tax payments, despite huge growth in efficient pensions saving

• Joining workplace schemes has saved Brits an extra £1 billion in pension tax relief
• But taxpayers will still waste £4.6 billion in unnecessary tax in 2016
• 57% of UK adults have done nothing to reduce their tax waste in the last year
• unbiased.co.uk and Prudential are helping people take action with a new Tax Waste Trimmer

UK consumers will save around £1 billion of unnecessary tax payments in 2016 due to more people joining workplace pension schemes, according to new research¹ released by Prudential and unbiased.co.uk, the UK’s favourite place to find financial and legal advisers. Yet Brits are still set to hand over £4.6 billion in unnecessary tax payments this year.

The TaxAction 2016 research looks at four key areas where people could reduce their tax wastage:

• pension contributions
• inheritance tax (IHT)
• capital gain tax (CGT)
• individual savings accounts (ISAs)

In 2015 there were 8.7 million people without any pension contributions, collectively wasting £2.9 billion in lost tax relief – this is now down to 7 million people paying nothing into pensions, thus reducing the wastage to £1.9 billion. However, deterioration in other areas of tax waste means the net saving is only £300 million.

In total £4.6 billion is set to be wasted this year (or £159 per taxpayer⁴) across the areas of IHT, CGT and income tax (due to people not making good use of pensions and ISAs).

Just under a fifth (18 per cent) of UK adults have tried in the last 12 months to reduce the amount of tax they pay, up slightly from 13 per cent in 2014. However, almost three in five (57 per cent) have done nothing about this. A fifth (18 per cent) of these respondents said they didn’t think there was anything they could do, while 22 per cent had not thought about it.

Karen Barrett, chief executive at unbiased.co.uk, comments: ‘It’s great to see workplace pensions saving such a huge chunk of tax – it really underlines the value of a pension. But clearly there’s still a lot of work to do in other areas. The nation could have saved a cool billion pounds if other factors had stayed the same, but instead tax waste looks to be increasing in all other areas. People need to focus now on the other ways to reduce tax, such as inheritance tax planning and the use of ISAs. And the UK is still not using pensions to their full potential – it was clear from our research that many of the new joiners are paying in only the minimum pension contributions.

‘Tax planning is one of the key areas in which a financial adviser can make a difference, both in the short and long term. Even if you think you’re already pretty tax efficient, speaking to an independent financial adviser or accountant can reveal many missed opportunities.’

Les Cameron, tax specialist at Prudential, comments:‘With the end of the current tax year looming, now is a good time for people to review their finances to make sure they’re saving as tax efficiently as possible. Making pension contributions is one of the easiest and most efficient ways for people to reduce their tax liability so it’s encouraging that this year’s TaxAction research shows that more of us are now saving into workplace pensions.

‘Ever changing tax rules make it easy to see why many people don’t always make full use of the range of allowances on offer. The good news is that there’s still time for people to take action. Professional financial advice can be invaluable to understanding the tax reliefs and allowances available in the current tax year and preparing for the new tax rules that will come into effect on 6 April.’

The nation’s expected tax wastage in 2016 – the key statistics:

£1.9 billion in pension tax relief waste

• UK tax wastage via pension contributions is set to decline significantly by £1 billion from 2015 to 2016⁵
• 7 million UK employees still do not make any pensions contributions. This is however down from 8.7 million in 2015
• Average annual contributions have decreased from £3,490 in 2015 to £2,840 
• Those still without pension contributions are set to miss out on an average tax relief of £568 annually (down from £698 in 2015)

£595 million in inheritance tax waste

• IHT tax wastage has increased slightly from £550 million in 2015 to £595 million in 2016
• IHT tax allowance has not changed. Standing at £325,000 for the period 2015-2016

£208 million in capital gains tax

• Capital gains loses have increased to £208 million from £158 million
• This is due to an increase in the number of taxpayers paying CGT from 155,000 to 191,000

£1.809 billion in cash ISAs

• Tax wastage by not using cash ISAs has increased from £1.2 billion to £1.809 billion
• Since the increase in the threshold in April 2015, the total amount held in cash ISAs has increased from £38,821 million to £60,951 million
• £5,924 is the average sum saved into a cash ISA by UK tax payers
• There are a potential 54.7 million additional cash ISA accounts that could be opened in the UK⁶

Following up the TaxAction 2016 research, unbiased.co.uk and Prudential have created a Tax Waste Trimmer to help people save tax using pensions, inheritance tax planning and tax wrappers for savings and investments. This checklist is available now on the TaxAction 2016 site: https://www.unbiased.co.uk/tax-action

ENDS

Notes to editors:

¹ TaxAction report 2016 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 2,006 UK adults aged 18+ carried out between 20^th and 24^th November 2015. Results have been weighted to nationally representative criteria.

²2015 TaxAction Research can be found here.

³Based on Opinium desk research: Annual Survey of Hours and Earnings (ASHE) 2014, accessed December 2015

⁴Based on the average number of taxpayers according to HMRC, https://www.gov.uk/government/statistics/number-of-individual-income-taxpayers-by-marginal-rate-gender-and-age . This calculation is based on the overall amount of tax wasted across different taxpayers, and while not every single taxpayer is affected in the same way, the average amount of £159 has been provided to show much would be wasted across the UK population.

⁵ Compared to last year, tax wastage on pension contributions has declined significantly from £2.9 billion to £1.9 billion. This is mainly due to the sharp fall in the number of employees without any pension contributions from 8.7 million in 2015 and now 7 million in 2016. Average annual contributions have decreased however from £3,490 in 2015 to £2,840, reflecting the number of new entrants contributing the bare minimum allowed. Considering that employees could on average save 20% of this amount as the contribution would be deducted from their gross salary, those still without pension contributions miss out on an average tax relief of £568 annually. In line with average contributions, this potential loss is also down from £698 in 2015.

⁶Using the existing figure for the number of current accounts open for 65 million, this means there is a potential 54.7 million further Cash ISA accounts (55 million last year) which could be opened. Assuming these potential accounts hold the average currently held in existing accounts, the interest on these accounts at the 0.99% (the average quoted deposit interest rates at banks and building societies un the UK for a variable rate Cash ISA) would amount to £3.2 billion`.

For more information contact:

Anna Schirmer/ Sarah Tye/Calum MacDougall, Lansons: 020 7294 3682

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