On average, we'll each hand over £165 more tax than we need to this year.
This figure comes from new research from Prudential and Unbiased.com, and is the equivalent of almost £5 billion across the nation.Here are the four key areas identified by the research in which taxpayers are shelling out more than they should.
The top area where we are wasting money is pension contributions, or rather the tax relief on offer.
If you pay into a pension, you get tax relief from the Government according to your Income Tax bracket. So for basic rate taxpayers, the Government will bump up your contributions by 20%, while additional rate taxpayers will benefit from an extra 45% on their contributions.
However, 4.2 million of us are not saving in pensions, and so are missing out on that tax relief. According to Unbiased, that equates to a whopping £2.9 billion of tax relief going unused.
ISAs offer savers the opportunity to put away £15,000 a year in cash and/or stocks and shares. The beauty of ISAs is that the money you put into them cannot be touched by HMRC, and neither can any gains made on that money. You can distribute your allowance in any way you see fit. For instance, you might have £5,000 in stocks & shares and £10,000 in a cash ISA. So long as the total doesn't exceed £15,000, you're fine.
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Around £550 million will be wasted due to life insurance policies not being placed 'in trust'. This shouldn't cost anything extra, but it means that the money paid out by the policy when you die will not be handled as part of your estate, and is therefore not subject to Inheritance Tax.
A £100,000 life insurance policy could be taxed by as much as £40,000 if the deceased's estate is worth more than £325,000, so the financial benefit can be massive. It's also advantageous as the money will be paid to the beneficiaries of the policy quicker. For more advice on keeping costs low for your loved ones, read How to cut your Inheritance Tax bill.
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Capital Gains Tax
There will be £158 million in unnecessary Capital Gains Tax payments this year, the researchers estimate. The main wastage here occurs because people don't use their ISA allowance to shelter their investments.
Any gain above the allowance is charged at 18% for lower rate taxpayers and 28% for higher rate taxpayers.
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Failing to use tax reliefs and allowances means that we're giving away money that we could otherwise enjoy or re-invest.
If UK taxpayers waste £4.9 billion, as the research says we might, that will be £200 million more than in 2014 – a massive increase, and a needless one. Though it's admittedly not the most exciting way of spending your time, a little effort now in tax planning could yield decent financial benefits.
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