Taxpayers who do not know their rights and fail to take action to minimise the tax they pay are wasting around £4.9 million a year.
The average taxpayer pays £165 too much in tax, according to research by financial firm Prudential and IFA web portal Unbiased.com
The report also reveals three-quarters of taxpayers have failed to take any action in the past year to reduce the tax they pay either because they are unaware of tax breaks or simply can’t be bothered to save the cash.
Despite the warning, 45% of taxpayers stubbornly believe they pay the least tax they can.
The study also reveals the tax waste figure is £200 million up on last year.
Where the money goes
The firms highlight four main tax reliefs wasted by ordinary taxpayers:
- ISAs – £1.3 billion is wasted by failing to save cash tax-effectively
- Pension contribution tax relief – £2.9 billion of relief goes unclaimed by workers not saving into pensions and higher and additional rate taxpayers failing to claim their extra relief
- Capital gains tax (CGT) – £158 million is claimed by not applying tax rules
- Inheritance tax (IHT) – £550 million is overpaid by a lack of estate planning
Tax planning is not always a priority and the rules are changing all the time, so something you may have done one year may not apply the next,” said Les Cameron, a tax specialist at Prudential.
No point to loyalty
“People make money by making good investment choices and best use of tax breaks.”
Cameron explained higher (40%) and additional (45%) rate taxpayers need to claim the extra tax relief on pension contributions to which they are entitled by submitting a tax return or they just receive the 20% paid to everyone else.
The research also shows tax breaks offered by ISAs and investors paying too much capital gains tax are linked because many investors do not shelter their savings inside an ISA which allows them to take any profits without paying capital gains tax.
“Many people shop around for the best deal from retailers but do not apply the same logic to their savings and investments,” said Unbiased.com CEO Karen Barrett.
“There’s no point being loyal, taxpayers should look for the best deal for them and their personal financial circumstances. If they do not take advantage of the best deals and any tax reliefs and allowances that come with them they are just wasting money.”