Poor financial planning will see British savers and investors waste up to £4.7 billion in tax breaks during the coming year.
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Despite an HM Revenue & Customs (HMRC) crack down on tax avoidance, research shows taxpayers are failing to claim the full amount of tax reliefs that are legally available.
According to independent financial advice web site unbiased.co.uk, taxpayers are bad planners and are entitled to money they simply give away to the tax man.
The £4.7 billion breaks down as:
- An average £161 per taxpayer in unclaimed tax relief – adding £8 to the £153 each wasted in the last year
- 77%: of savers and investors confessing they have done nothing to reduce their tax bills in the last 12 months
- 38% believe they can tackle their tax waste without the help of a professional
- Taxpayers are gifting £100 million more to the tax man in 2014, compared to 2013, by not making the most of available tax reliefs and ignoring tax-efficient savings products.
Where the money is wasted
The research highlighted four key tax issues for most taxpayers:
- Individual savings accounts (ISAs)
- Tax relief on pension contributions for higher rate and top rate taxpayers
- Capital gains tax (CGT)
- Inheritance tax (IHT)
Karen Barrett, chief executive of unbiased.co.uk, said: “Our research shows people are ready to waste even more tax in 2014 than they did in the last tax year.
“People spend a lot of time shopping around to compare prices and find money off deals; they seem to ignore their personal finances.
“Millions of savers and investors are putting their hard-earned cash into unsuitable taxed accounts when taxa-free allowances and better rates are available elsewhere.”
Professional tax advice
Barrett highlighted pension saving as one financial improvement many workers could make.
“By switching savings from taxed accounts to pensions, they could improve their savings with the pension relief top-up offered by the government,” said Barrett.
“It may not be easy to keep up with quickly changing rates and rules, but seeking professional advice can really add value to the money savers are putting away.”
The research revealed that investors pay CGT because they do not shelter their cash in ISAs or pensions, where growth in the value of shares and other assets is tax-free.
Instead, anyone making more than £10,900 from disposing of investments, including property, stands to pay CGT at 18% as a basic rate taxpayer or 28% if they pay tax at a higher rate.
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