How much unnecessary tax are you paying? Households will overpay £4.7 billion in tax this year by failing to utilise legitimate allowances and tax efficiencies.
According to professional advice website unbiased.co.uk, each of us pays on average £161 too much tax a year – and the more you earn the more likely you are to overpay.
This year Britons will pay the taxman £100 million more than in 2013, by not making the most of savings, investment and pension allowances. The largest area of waste is tax relief on pension contributions where as a nation we fail to claim up to £2.9 billion worth of exemptions.
ISA allowances are underutilised too – to the tune of £1.1 billion a year. Inheritance tax bills could be reduced legitimately by up to £530 million this year, and investors are overpaying capital gains tax by £154 million.
What’s more, Britons are failing to prioritise tax planning – three quarters of those surveyed in unbiased’s Tax Action report admitted they have done nothing to reduce their tax bill this tax year.
Karen Barrett, chief executive of unbiased blames constantly changing tax regulations for putting people off estate planning.
With so many changes to tax legislation it’s not surprising to see people burying their heads but it’s time to take action and take control of your tax burden,” she said.
Barrett urged people to consider seeking professional advice and said those looking for advice should speak to a professional financial adviser who specialises in tax or an accountant to ensure they are being as tax efficient as possible.
Standard Life’s Julie Hutchison agreed.
“With the end of the tax year looming, I’d encourage everyone to focus on their finances and not to forget to use up their tax efficient ISA allowances if they can,” she said. “And with interest rates still low, don’t forget you have the option of investing, rather than keeping all your money in cash.”
There is one section of society that is waking up to the drag of tax on their estate according to financial advisory group deVere. More than half of their clients aged 40 or younger now prioritise reducing their inheritance tax liabilities within their financial planning strategy – which chief executive Nigel Green blames on the Chancellor’s decision to freeze the inheritance tax threshold until 2019.
“Many of these people at this age will have young families and will also be reaching their earning peak,” he said. “As such, they will be more likely to be thinking seriously about how they can safeguard their wealth to be able to leave a decent legacy. Passing on to our children all we can is, of course, something to which the vast majority of parents aspire; it’s a human instinct.”
