Britons Set To Waste

by jrbrubaker

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A quarter (25%) believe couples with young children will be hit hardest by tax hikes – nearly one in eight (12%) think retired couples will suffer most
To prepare for an increased tax bill, nearly a third of Brits (30%) have cut down on luxuries such as eating out, theatre and cinema trips
Apathy still remains with over half (53%) doing nothing to prepare for tax increases
Visit Unbiased.co.uk to take Tax Action and find an independent financial adviser near you

With election fever on its way – and with tax a key topic on the agenda – exclusive research by Unbiased.co.uk, the professional advice website, reveals a whopping £9 billion* is set to be wasted in unnecessary tax payments this year. At the same time, however, a third of Brits (33%) will be considering tax policies before voting in this year’s General Election, suggesting consumers are blissfully unaware of their tax apathy and the billions it costs them in reality.

Unbiased.co.uk’s latest Tax Action report – now in its 18th year – reveals Britain’s tax wastage has reduced by 9% after reaching a peak of £10 billion last year**.  Yet conversely, a massive 86%*** of Brits still admit to doing nothing to reduce their tax burden.  The largest areas for tax wastage are Tax Credits, where consumers stand to waste nearly £4 billion this year, followed by Inheritance Tax at nearly £2 billion.  (See Table 1 below for full tax wastage breakdown).

Karen Barrett, Chief Executive of Unbiased.co.uk, comments: “During 2009, financial markets were in turmoil and cash strapped consumers were feeling the full force of the recession.  And while things may be starting to look up in 2010, it is still vital for everyone to be looking at their finances and making sure they’re not throwing money away unnecessarily.  A key way to do this is taking advantage of the tax incentives, reliefs and credits available to each person – and to avoid being hit by fines for basic mistakes.  Our annual Tax Action report has revealed an estimated £9 billion will be wasted this year in unnecessary tax payments.  This equates to an average of £186 for each UK taxpayer – although this sum varies greatly depending on lifestage and individual financial circumstances.”

Election fever predicts ‘taxation nation’

Despite the fact consumers are passively throwing away a vast annual tax wastage of £9 billion, the research goes on to reveal how Britons are preparing themselves for ‘taxation nation’, with nearly a third (31%) expecting taxes to rise substantially after the General Election.  A quarter of Brits (25%) believe couples with young children will be hit hardest by tax hikes, and just over one in ten (12%) think retired couples will suffer the most.

Consumers cut back in preparation for tax hikes

To prepare for an increased tax bill, nearly a third of cash strapped Brits (30%) have cut down on everyday luxuries such as eating out in restaurants, and trips to the theatre and cinema.  A fifth of consumers are spending less on holidays (19%) and a further fifth are shopping in ‘cheaper brand’ supermarkets (20%).  However, apathy remains rife as over half (53%) are doing nothing to prepare for tax increases.

Karen Barrett, Chief Executive of Unbiased.co.uk, continues: “Whilst it is encouraging to see our annual tax wastage is set to go down by 9% this year, £9 billion is still a colossal amount to be lost through error and avoidable circumstances****.  Furthermore, this decrease in tax wastage could also be down to the shrunken economy – with simply less disposable income for the tax man to get his hands on.  Tax can seem a complex issue for many, and even more so in the current environment as people reassess their finances and the way they handle their expenditure.   An independent financial adviser can assess your whole financial position and ensure you are being as tax efficient as possible.  It is vital that people take Tax Action now and save money, so hopefully we can see our annual tax wastage continue to decrease.  To find a local IFA near you, visit Unbiased.co.uk and use our free and confidential ‘find an IFA’ search.

Tax Saving Tips from Unbiased.co.uk’s IFAs

ISAs – Adrian Lowcock, Bestinvest

“Any interest earned by your savings in a cash ISA are received free of income tax, so a basic rate taxpayer can save 20% on Income Tax, whilst a higher rate tax payer can save 40% – so anyone with savings not already in an ISA can benefit right away from the tax relief. For those investing in a stocks and shares ISA, the main benefits are no tax on Capital Gains, which could save you 18%, and there is no further tax to pay on income. The specific tax-saving on income depends on your choice of investment and whether you are a basic rate or a higher rate tax-payer.  But investors need to do more than just take out their ISA – i.e., don’t just buy a top performing fund.  Actually take the time to understand why a fund has performed well.  Is it in a booming, but potentially high risk, sector? Or was it due to an exceptional manager who no longer runs the fund? After careful consideration, if you’re then still attracted, remember to make sure that the fund meets your investment objectives.”

Pensions – Jason Witcombe, Evolve Financial Planning

“Delay your pension contributions!  With the exception of very high earners, you receive tax relief on pension contributions at your marginal rate of tax. Higher rate tax starts at £43,875 p.a. for most people. If your income is £25,000 p.a. you receive 20% tax relief – a £1,000 pension contribution costs you £800. If your income is £50,000 p.a. you receive 40% relief with a £1,000 pension contribution costing you £600.  A 20% taxpayer who expects to become a 40% taxpayer soon might consider delaying contributions. Naturally, make sure that you pay into your employer pension scheme in the meantime.”

Tax & Personal allowances – Dan Clayden, Clayden Associates

“It may seem obvious, but make sure you arrange your income to take full advantage of your personal allowance. Good planning can help with this; for example, by remembering a couple will have two personal allowances and so between them can receive the first £12,950 of their combined income effectively tax-free. An IFA will be able to recommend other ways in which you can arrange your finances, to ensure that this tax-free allowance isn’t wasted.  We also see the introduction of a new ‘super’ rate of income tax and the removal of personal allowances from higher earners in April. This will mean that tax wrapper selection for investments will become even more important, as the introduction of higher rates of tax will widen the effect on returns seen between the most and least tax efficient wrappers.”

Child Trust funds – Peter McGahan, Worldwide Financial Planning

“A Child Trust fund grows free of tax on income and gains until age 18 – after which it is taxed in the normal way. Parents can invest £1,200 per year into this scheme.  Eligible children receive £250 voucher from the Government which should be invested as soon as possible to ensure they receive the maximum tax saving gains on the account.  For those parents concerned

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