The analysis, compiled by Mintel for IFA Promotion, attributes the wasted tax to people's financial inertia or lack of understanding of the tax system.
As much as pounds 1bn is paid in unnecessary tax by 30 million tax-paying savers with long-term bank and building society savings who would be better off with a tax-free Tax-Exempt Savings Account (Tessa), while another 4.5 million savers who are non-taxpayers should be, but are not, registered to receive their interest gross. Non-taxpayers can receive interest without tax deducted by filling an IR85 form, available from banks, building societies or your local tax office.
Other areas of waste include:
q Up to pounds 930m of inheritance tax paid through failing to plan ahead. Clark Whitehill, an accountancy firm, has just published a free guide which shows how to avoid the clutches of the Inland Revenue. Copies are available from Tina Humphreys on 0171-353 1577.
q Up to pounds 860m of tax paid by existing unit trust holders and shareholders not making use of personal equity plans. However, where a PEP carries charges additional to those for buying the underlying investment, you should check these do not wipe out the tax saving.You might be worse off in some PEPs.
q Up to pounds 540m wasted by more than 1 million people not making full use of personal allowances. Couples can save tax by the higher tax-paying partner transferring income-producing assets (such as building society accounts) to the lower tax-paying partner. This tax-saving mechanism works up until the point where both partners pay tax at the same rate.
q Up to pounds 325m of unnecessary capital gains tax is paid by small shareholders not using exemptions sufficiently. Everyone can make tax-free gains of pounds 6,000 a year (pounds 6,300 from April). In addition, only real gains, above inflation, are potentially liable and capital losses can be used to reduce your gains liability. However, using the allowances normally requires action on your part to crystallise any liabilities - selling or selling and immediately buying back (called bed-and-breakfasting). Otherwise the potential liabilites are carried forward, and the pounds 6,000 tax-free allowance for that year is lost.
q Up to pounds 200m is lost through interest and penalties for late payment of tax and through mistakes by the Inland Revenue.
q Nearly pounds 100m is wasted by not making donations to charity via the Gift Aid scheme, which can allow both you and the charity to benefit from tax relief.Reuse content