UK taxpayers set to overpay £4.9 billion in tax

19 Jan 2015

  • £4.9 billion set to be wasted in 2015 by UK taxpayers not being tax efficient - £200 million more than in 2014
  • £165: the average amount each individual taxpayer is set to waste
  • 74% of taxpayers admit they haven’t done anything to reduce their tax waste in the last 12 months
  • Despite the available savings, 45% of this group think they are already paying as little tax as they should
  • unbiased.co.uk and Prudential have produced a simple guide to tax allowances and requirements

New research1 released today by unbiased.co.uk, the UK’s most comprehensive ‘find an adviser’ search, in partnership with Prudential, reveals UK taxpayers are set to waste as much as £4.9 billion this year in unnecessary tax payments.  The 2015 unbiased.co.uk TaxAction research shows Brits are set to gift nearly £200 million more to the taxman, compared to 20142, 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 £4.9 billion set to be wasted this year translates into £165 on average3 per individual taxpayer, up from £161 in 2014. 

Area of tax wastage

£ amount of wastage 2015

£ amount of wastage 2014

Tax relief on pension contributions

£2.9 billion

£2.9 billion

Cash and stocks and shares ISA allowance

£1.3 billion

£1.1 billion

Inheritance tax

£550million

£530 million

Capital gains tax

£158 million

£154 million

Les Cameron, tax specialist at Prudential, comments:“Busy lives and ever changing tax rules mean that tax planning may not always be at the top of many people’s to-do lists. But by failing to plan efficiently, many of us are simply not maximising the available value of our hard-earned savings.

“Making the most of your money is primarily about the right investment choices, followed by the best use of the various tax reliefs and allowances on offer. Put simply, greater tax efficiency increases the prospect of a better return.

“Everyone’s circumstances are different so it’s important to seek professional financial advice for a review your own situation and to make the most of the available tax breaks.” 

Karen Barrett, Chief Executive of unbiased.co.uk, comments: “unbiased.co.uk and Prudential’s 2015 TaxAction research shows a significant rise in the amount of tax set to be wasted this year compared to 2014.  Shopping around for the best deal continues to be put forward as the solution for everyday items, but many consumers have still not reaped the benefits for their finances. Millions of UK taxpayers are putting their money into taxed saving and investment products, when there are substantial reliefs, allowances and better rates readily available.

Changes to tax legislation, as well as the new pensions freedoms, make it seem less stressful to take no action, but there are simple steps that will make a real difference to your finances. Tax is an area where professional advice can make a real difference, over both the short and long term. Those looking for advice should speak to a professional financial adviser 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.”

The nation’s tax wastage 2015 – the key statistics:

£2.9 billionin 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 billion4 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 billion5 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’6
  • 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

  • £1587 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

Prudential and unbiased.co.uk have together produced a handy guide to allowances and requirements for pensions tax relief, inheritance tax, ISAs and capital gains tax.  The guide can be viewed on the unbiased.co.uk Tax Action 2015 site: https://www.unbiased.co.uk/tax-guide.pdf

 

ENDS

Notes to editors:

  1. 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.
  2. 2014 total tax waste is £4.7 million TaxAction Research 2014
  3. Based on the average number of taxpayers, according to HMRC: http://gov.uk/government/numbertaxpayertraders. 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 £165 has been provided to show how much could be wasted across the UK population.
  4. 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.
  5. 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.
  6. 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. 
  7. 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. 

For more information contact:

Anna Schirmer/ Sarah Tye, Lansons: 020 7294 3682

For expert commentary or case studies from over 200 media-friendly advisers, journalists should visitunbiased.co.uk Bluebook - The Media IFA Network

Twitter: @unbiased_co_uk

LinkedIn: unbiased.co.uk - Online networking for professional advisers

About unbiased.co.uk, the professional advice website

The unbiased.co.uk website launched in 1998 and rapidly became the UK’s leading online destination for consumers and businesses looking to find an adviser.  Now attracting over one million visitors a year, unbiased.co.uk is the default adviser directory for consumer websites recommending their audience to ‘find an adviser’.

Unbiased Ltd promotes the benefits of financial and legal advice to consumers and businesses and would like to thank the following companies for their support:

 

Supporters 

 

Alliance Trust 

NS&I

Aviva

Opinium Research 

AXA Wealth

Prudential 

Canada Life Ltd 

Royal London 

Legal & General 

Santander Asset Management 

Lockton 

Standard Life Assurance Limited

MetLife

    

Unbiased Ltd - Registered Office: 12-14 Berry St, London, EC1V 0AU.  Registered in England: No. 06775878.

Category: Tax planning Tagged: ISAs, Inheritance Tax


More press releases on Tax planning