Take action over tax wastage

Apr 2 2008 by Marlene Shalton, Western Mail

IT is 16 years since Unbiased.co.uk began its tax campaign, yet it now reports that tax wastage is at the highest ever level.

More than 34 million UK adults are dissatisfied with the current tax system, but 82% admit to doing nothing to reduce tax payments.

The amount lost to Inheritance Tax (IHT) increases to more than £1.9bn despite a fifth (20%) of the population naming perceived “death taxes” as the most resented. One in three UK adults would ask the Chancellor to change the current income tax system.

UK adults will waste almost £9.3bn in unnecessary tax in 2008, according to the latest Tax Action report from Unbiased.co.uk. The report shows that the amount wasted in tax payments will increase by almost £1.4bn compared with 2007 to the highest ever since Unbiased.co.uk’s campaign began.

The  Find an Independent Financial Adviser Search shows that unnecessary IHT payments is set to rise by more than £360m in 2008, to a predicted total waste of more than £1.9bn. This is despite IHT being named the most resented tax by one in five adults.

Here are 10 ways to claw back some of the waste:

If you have assets of more than £300,000, plan your inheritance – an extra £1.9bn could be inherited by planning properly. IHT is often lost through not writing life assurance policies in trust, not using inheritance tax allowances or by not making a will at all.

If you have savings, use up your annual Isa allowance – £263m in tax could be avoided this way, or moving savings from an ordinary savings account to an Isa. Also consider Friendly Societies or National Savings & Investments.

Claim your tax credits – £3.7bn of “free money” is up for grabs from HMRC and the DWP, in the form of Pension Credits, Child Tax Credits and Working Family Tax credits.

£479m could be wiped out by all tax returns arriving present and correct by the January 31 deadline. Forms received late incur penalties of £100; further penalties and errors make up the balance of tax wasted in this way.

All taxpayers should maximise their personal tax allowances – £474m goes begging each year, £330m through non-taxpayers failing to claim tax back on banks and building society accounts, and a further £144m by taxpayers not transferring savings accounts to non-taxpaying spouses.

Top up your pension pot – £726m could be spared by optimising contributions to personal or company pension schemes, or making Additional Voluntary Contributions.

Take advantage of it of an employee share plan – £184m is up for grabs for the estimated 600,000 staff currently in Profit Related Pay schemes.

Use your capital gains allowance efficiently, perhaps by transferring assets between spouses to make the most of both of your CGT allowances.

Give to charity – £936m more could go to good causes by using tax-efficient means of charitable giving, for example using a deed of covenant or Gift Aid.

Child trust funds – avoid waste by using up the tax free saving potential.

It is surprising that people are still not taking action about wasted tax payments. While tax can be a confusing topic, help is at hand. Through www.unbiased.co.uk/ taketaxaction a local IFA can help you discover where you can make significant savings on your tax burden.

Marlene Shalton is a director of independent financial advisers Chambers Morgan James