29th May 2015
This week you will be ‘tax-free’ after working 150 days for the taxman, but you can make this day come sooner.
Sunday 31 May marks ‘tax freedom day’ , when the average person has worked enough days to effectively pay off the total amount of income tax, national insurance, VAT, fuel duty and other taxes.
Unfortunately, tax free day comes one day later than it did last year but with a clever bit of planning you can ensure your tax freedom day lands earlier next year.
Karen Barrett, chief executive of adviser search engine unbiased.co.uk, said: ‘Although tax freedom day is only a theoretical point in the calendar, it does help remind people of the tax burden we all have to manage every year, and that we should be taking steps to keep this as low as possible.’
She said recent research shows that Britons are not taking advantage of tax breaks they are entitled to, leading to a national wastage of over £4.9 billion.
Nearly three-quarters of people have done nothing to reduce their tax waste in the last year.
Here are some of the ways you can make use of tax allowances, so you keep more of your money.
Pension tax relief: UK employees put away £3,490 on average each year, receiving £698 a year in tax relief from the government – this means tax relief of up to £2.9 billion is wasted each year as everyone can save up to £40,000 a year into their pension.
Higher rate taxpayers, paying 40% and 45% income tax, have to claim back the additional relief owed to them as just 20% tax relief is paid automatically.
ISAs: 55 million UK bank accounts holders are wasting a combined £1.3 billion by failing to move their money into tax-free ISAs – money held in bank accounts is taxed.
Inheritance tax (IHT): £550 million is wasted in IHT by individuals who do not place life insurance policies in trust, which takes them out of the estate. By failing to put the money into trust, a £100,000 policy could be reduced by £40,000 if the individual’s estate is worth more than £325,000.
Capital gains tax (CGT): £158 million of unnecessary CGT payments were made this tax year, with one of the main reasons for payment being that people do not shelter their assets in ISAs where no CGT is due.
Barrett said: ‘There are simple steps you can take to ensure you are being as tax efficient as possible and bring forward your own personal tax freedom day.
‘Many UK taxpayers are saving money into taxed saving and investment products, when they could be making the most of substantial reliefs, allowances and better rates. There are clearly some tax payments that cannot be changed but people should make sure they are not unnecessarily wasting their earnings, and use this day as a reminder to take action on their taxes.’