Tax Freedom Day underlines issue of tax wastage
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 unbiased.co.uk, 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 unbiased.co.uk 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.
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.