UK taxpayers facing huge tax rises ignorant of how to alleviate the burden, research suggests

News - Tax

Written by Ray Clancy

Tuesday, 11 May 2010 10:00

Many taxpayers in the UK are expecting substantial post general election tax rises regardless of which combination of political parties manages to form a new government but they are ignorant of how to improve their situation, research shows.

Almost a third, some 31% are expecting tax hikes but few are doing much to reduce their tax burden, the research from professional advice website unbiased.co.uk has found.

Britons set to waste £9 billion in unnecessary tax payments this year and 86% of consumers admit doing nothing to reduce their tax burden, the research also found.

The wastage is due to people squandering tax breaks, reliefs and credits and paying fines for late or inaccurate tax returns.

Karen Barrett, Chief Executive obiased.co.uk is urging people to do something to reduce their tax burden. ‘By taking tax action to reduce your individual tax waste now, you will be able to offset some of the likely increase in tax burden as well as ensuring you have your personal finances in order,’ she said.

Advice includes simple things like ensuring you are on the right tax code, according to Robert Forbes of Plutus Wealth Management. ‘It’s important to check that you’re on the correct tax code by speaking with your local tax office. Quite a few people, especially those that have moved from one job to another may find themselves on the wrong tax code or an emergency tax code meaning at worst they pay tax on all their income and have no personal allowance. This can add up to quite a lot as a basic rate taxpayer and even more as a higher rate taxpayer,’ he explained.

Graeme Mitchell of Lowland Financial points out that higher rate taxpayers will be able to obtain up to 60% relief on pension contributions this year. ‘If you earn over £43,875 you will pay tax at 40% this year on part of your income. Consider paying up to £20,000 into a Personal Pension if you are a higher rate taxpayer,’ he said.

‘Higher rate tax relief for pensions mean that a £20,000 investment will get at least 40% tax relief making the net cost at most £12,000. For anyone earning between £100,000 and £112,950 tax relief on payments made before 6th April 2011 could be 60%, turning a net payment of £5,180 into a pension fund of £12,950. Pensions are still just investments but with higher rate tax credits available they have a significant boost compared to any other type of investment,’ he added.

According to Lorreine Kennedy of CareMatters there are many ways that a person can alleviate tax by passing on their estate to the next generation. ‘One such tax break that people often forget is that each tax year a person may ‘gift’ £3000 to another person. The first time they do this, they can use the previous years gifting allowance, meaning that the first time one does this £6,000 may be passed on to a loved one,’ she explained.

‘This is doubled to £12,000 if a couple does this. On the surface, this appears to be relatively small fry and so many people ignore this tax break. Over 10 years though, a couple can give away £66,000,’ she explained.

Gordon Bowden of Quainton Hills Financial Planning reckons that more confident investors with a higher risk profile can look at Venture Capital Trusts that offer 30% income tax relief on investments up to £200,000 in any tax year. Any dividends are free of income tax and gains are capital gains tax free. The VCT needs to be held for at least five years to benefit from the tax relief.

Danny Cox of Hargreaves Lansdown points to Bed & ISA which uses the principle of selling a holding within your capital gains tax allowance then buying back the same holding within a tax efficient ISA. ‘This can either top up or fully subscribe this year’s ISA. All future gains and income will be protected from tax in the ISA as the tax slate has been wiped clean. You can choose to buy the same shares or funds back, choose other investments or hold cash,’ he explained.