£4bn wasted despite it being 'Tax Freedom' day
Today may mark Tax Freedom Day - the point at which you've earned enough income to pay off your annual tax burden - but Brits are still handing over £4 billion in tax more than they need to.
Collectively, UK taxpayers pay out £4.7 billion in unnecessary tax to HMRC by not making the most of tax relief or tax-saving products – that's an average of £161 per person.
The research compiled by financial advice network unbiased.co.uk also found that £2.9 billion was set to be wasted by those not using tax relief, £1.1 billion by people failing to make the most of their Isa allowances.
Three-quarters of people (75%) admit they have done nothing to reduce their tax waste in the past 12 months and only 38% would be confident in organising their tax planning without the help of a financial adviser.
A spokesperson for Unbiased said: "Tax Freedom Day may be a notional date in the calendar but our research shows, when it comes to tax, people could be doing much more for their own financial benefit if they looked closely at their savings and investments.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.