You are here: Home - Saving-Banking - News -

Tax Freedom Day underlines issue of tax wastage

Written by:
Sunday 31 May 2015 marks UK Tax Freedom Day – the day of the year on which we have earned enough income to stop paying taxes, and start earning money themselves.

The Adam Smith Institute calculates that come Sunday, the average UK citizen will have earned a sufficient amount to cover their National Insurance, VAT, fuel duty, and other tax liabilities for the year.

However, Karen Barrett, chief executive of, believes that Tax Freedom Day could come even earlier for UK consumers if tax breaks were utilised correctly.

“Our TaxAction research with Prudential shows there are a number of tax breaks that people are entitled to but are not taking advantage of, leading to a national tax wastage of over £4.9bn,” Barrett warns.

“74 per cent of people we surveyed said they’d done nothing to reduce their tax wastage in the past year. By seeking professional advice, they could be seeing a real difference in their savings. A financial adviser or accountant will be able to inform you of all your options, and help guide you towards the products and allowances that are part of efficient and responsible tax planning.”

A major issue highlighted by is that many consumers are placing money in saving and investment products that are taxed, when they could be capitalising upon substantial reliefs, allowances and better rates. Key areas of tax wastage include:

  • Pension Tax Relief

UK consumers place an average of £3,490 into their pension annually (including £698 a year in tax relief).

However, 4.2m UK employees are not saving into a pension, and not making use of their pension tax allowance, resulting in £2.9bn in unused tax relief every year.

  • ISAs

55m UK bank account holders will waste a combined total of more than £1.3bn by not moving their money into tax-efficient individual savings accounts (ISAs).

  • Inheritance Tax

£550m is wasted every year in inheritance tax payments, as individuals fail to place life protection policies ‘under trust’.

Not placing it under trust 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.

  • Capital Gains Tax

Capital Gains Tax (CGT) waste occurs when people fail to use ISAs to shelter investments from tax liabilities.

Each UK taxpayer has an annual CGT-free allowance (£11,000 for the current tax year).  Any gain above the allowance is charged at 18 per cent for lower rate taxpayers, and 28 per cent for higher.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Everything you wanted to know about ISAs…but were afraid to ask

The new tax year is less than a fortnight away and for ISA savers or investors, it’s hugely important. If yo...

Your right to a refund if travel is affected by train strikes

There have been a wave of train strikes in the past six months, and for anyone travelling today Friday 3 Febru...

Could you save money with a social broadband tariff?

Two-thirds of low-income households are unaware they could be saving on broadband, according to Uswitch.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week