Are you Paying too Much Tax?

Following our series last week summarising the highlights from the 2013 budget we thought we would share some quite staggering statistics. Did you know that each year UK tax payers unnecessarily pay away billions in taxation, simply by not taking the right advice, or action, to mitigate the amount of tax they pay?

The great tax giveaway
  • £4.6 billion is the overall total amount of tax set to go to waste this year by UK taxpayers
  • £153 is the average amount of unnecessary tax per UK taxpayer in 2013
  • 30% of tax is wasted through unused ISA allowances
  • 12 days – all you have left, to take advantage of this year’s ISA season
  • 68% of British taxpayers haven’t done anything to reduce the amount of tax they pay

The latest figures released from the 2013 Tax Action research reveal that UK taxpayers are set to gift a whopping £4.6 billion in unnecessary tax to the taxman this year.

The overall tax waste mountain translates into £153 on average being wasted per individual taxpayer, but despite that figure,’s latest poll shows that 7 in 10 (68%) people state they haven’t done anything this year to tackle their individual tax waste figure.

Snapshot of ISA wastage:
  • Savers are set to lose out on £1.4 billion by not being ISA efficient
  • £1.3 billion is wasted through tax inefficiency when it comes to cash ISA savings
  • £62 million is wasted by not holding investments within a stocks and shares ISA
  • 12 days left to make the most of the 2012/13 ISA season
Use your ISA allowance before April 5th

Research shows that savers could be losing out on £1.3 billion of extra money by not making use of cash ISAs this year, instead putting their money in savings accounts where any interest generated is taxable. The £1.3 billion potential extra money includes £311 million estimated tax payable on interest earned, which could be avoided by utilising ISAs, as well as around £984 million additional interest which could be earned from the better average rates available on ISA accounts.

Following the same formula, the research also reveals that a further £1.3 million is being wasted.  The research is based on an extra 145,000 Junior ISAs that could be opened and the average interest rate they could be earning, revealing that at the basic rate of tax £1.3 million is being wasted by those eligible to subscribe, which could be avoided by utilising ISAs.

But taxpayers are also missing out on tax breaks available with stocks and shares ISAs – 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 £5,483 per household, the additional tax benefit could amount to £62 million.

Snapshot of pension relief waste:
  • Nearly 4.3 million adults are currently in employment but not paying into a pension and who are likely to consider contributing
  • £2.6 billion is the amount of tax allowance that taxpayers who do not currently contribute to a pension could benefit from if they saved into a pension
  • £150 million is the rise in pension waste from unused pension tax allowance from 2012 Tax Action research.
Make the most of your pension contributions

Nearly 4.3 million people (not currently paying into a pension but who would potentially consider it) are currently leaving £2.6 billion of income tax relief on pension contributions unused.

The latest HMRC figures show the average pension contribution made by individuals per year is £3,010.  Based on this level of contribution, employees could boost their pension pot by as much as £602 each and £2.6 billion collectively, simply by taking advantage of tax relief on pension contributions, and this is just for basic rate payers.

Anyone paying towards a pension receives tax relief on their pension savings at 20% and up to 40% or 50% according to the rate at which they pay tax.  The tax relief on pension contributions is even more important if you are a higher rate taxpayer where the onus is on you to claim back the additional tax relief owed to you.

 Snapshot of CGT waste:
  • £171 million is wasted in unnecessary CGT payments
  • £10,600 is the CGT free allowance available to each tax payer in the tax year 2012/2013
  • £38 million represents the rise in CGT waste from 2012
Take Tax Action to reduce your CGT bill:

UK taxpayers could be wasting as much as £171 million in unnecessary capital gains tax (CGT) payments this tax year, by not making use of tax efficient strategies and allowances available to them.

CGT is a charge that arises from the disposal of assets that have increased in value. This tax does not apply on the sale of your primary residence or your car, but gains made on the sale of shares or buy-to-let properties as well as some other kinds of assets are taxable.

Each UK taxpayer has an annual CGT free allowance, which for the 2012/2013 tax year currently stands at £10,600.  Any gain above the allowance is charged at 18% for lower and 28% for higher rate tax payers. Have you used your allowance this year?

Snapshot of IHT waste:
  • £24 million represents the rise in inheritance tax waste from 2012
  • £472 million is the amount of money wasted in inheritance tax by individuals not placing life protection policies ‘under Trust’
Careful tax planning could save £472 million in inheritance tax

In order to avoid losing money in inheritance tax, individuals taking out life protection specifically to provide for their heirs should consider placing their policy ‘under trust’, thereby removing the asset from the estate. This will ensure the payout goes to the person, or people intended, rather than the taxman – 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, the current inheritance tax-threshold for individuals. Have you got the right policy in place to protect your estate from a hefty tax bill?

For more information on how we can help you to reduce your tax bill, act now by contacting a member of our team. Remember, you only have until April 5th to make use of your allowances, if you don’t use it you lose it.