Would the US tax-return system benefit Brits?

US flag The UK tax system is complex, meaning people are often penalised for not understanding the rules or fail to claim the tax credits they are due; could we be better served by the Amercian tax-return style system?

US citizens fill out annual tax returns setting out their income, savings and debt. This applies to all, whether they are living in the country or not.

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To us Brits this tax system may seem like a pain in the proverbial but it can have huge advantages. Britons have on average £5,998 of debt according to money education charity Credit Action, and this figure rises to £54,017 when the mortgage is added in.

This level of debt is in stark contrast to the amount of savings we have; the average person has just £2,022 squirrelled away, according to figures from ING.

This contrast between debt and savings would mean we'd all be quids in in the States; the way the tax system is set up means it actually pays to be in debt. Much like the way companies complete tax returns over here, in the US citizens can knock mortgage interest and debt repayments off their income tax bill as well as receive credits for university fees, children and even donating to charity.

As a nation built on homeowners, or at least aspiring homeowners, and mountains of credit, many Brits could see their annual income tax bill shrink to nothing.

Savings are the nemesis of the US tax return, the more you save and the more return or income you make from your savings, the more you have to pay in tax - a system that truly penalises savings.

I actually don't think the US tax regime is the right way to go, I genuinely think we've got a better system but as Americans aren't rewarded for savings, I think we should be rewarded more.

There was some rumours before the Budget that there would be a few savings incentives thrown in, but alas there weren't. However, I think the government should get on board with Nationwide's idea of allowing people to save their entire ISA allowance into cash rather than just half.

When savings levels are so poor, offering people another place to stash their cash without taking any risk could prompt more people into action. Getting people to save is always a challenge, what would incentivise you to save more?

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Would the US tax-return system benefit Brits?
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.

The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).

Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.

Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.

Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.

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The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.

The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.
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