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.

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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