This year UK taxpayers are predicted to pay up to £4.9 billion more tax than required, by not taking advantage of the available tax planning option, according to a study commissioned by Prudential and financial adviser website unbiased.co.uk.
The 2015 Tax Action report highlights that people’s frequent failure to make use of the allowances across ISAs, pensions, capital gains tax and inheritance tax, has led to billions being paid out unnecessarily.
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As manifested in the report, 45% of savers think they are already paying as little tax as they should while 74% of taxpayers admit they haven’t done anything to reduce their tax waste in the last year.
The average amount each individual taxpayer is set to waste stands at £165.
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.
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By GlobalDataAnyone 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%, rising to up to 45% 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 £2.9bn 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, £1.2bn of which is due to a failure to use cash ISAs, and a further £104m through stocks and shares investments not held in ISAs.
People are wasting a total of £550m 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.
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 £157m was wasted this tax year in unnecessary CGT payments.
