Jeff Salway: Taxman gains from inefficient savers

The pounds wont take care of themselves  savers must take active steps to cut personal tax wastage. Photograph: Brian Jackson/Getty/iStockphoto

Failure to invest in employee pensions and use Isa allowances contributes to £200m rise in losses to £4.9bn, writes Jeff Salway

GOVERNMENT coffers are primed for a £4.9 billion gift from ordinary savers and investors in the UK this year as tax-saving opportunities continue to go begging.

People ploughing money into taxable savings and investments without using their annual allowances will overpay an average of £165 in 2015, according to a new study.

The annual Tax Action report from advice group unbiased.co.uk found that some £200 million more than last year will be lost to tax inefficiency, despite the ongoing pressure on household finances.

The research, published ahead of the 31 January deadline for filing online self-assessment returns, also found that three-quarters of taxpayers admit to having done nothing over the past year to cut their personal tax wastage. Almost half believe they are already paying the minimum amount, but the figures suggest otherwise.

SUBSCRIBE TO THE SCOTSMAN’S BUSINESS BRIEFING

• Get the latest business headlines from a variety of news sources emailed to your inbox each morning

Karen Barrett, chief executive of unbiased.co.uk, said: “Millions of UK taxpayers are putting their money into taxed saving and investment products, when there are substantial reliefs, allowances and better rates readily available. Changes to tax legislation, as well as the new pensions freedoms, make it seem less stressful to take no action, but there are simple steps that will make a real difference to your finances.”

The biggest area of wastage is in pensions. Workers rejecting the chance to save into pensions provided by their employer are missing out on an estimated £2.9bn in tax relief on contributions.

The average annual pension contribution of £3,490 includes almost £700 in tax relief, said the report. But the 4.2 million adults in employment not paying into a workplace pension are therefore not benefiting from the money chipped into pensions by the government.

The complexity of the pensions system is partly to blame, said Derek Stewart, managing partner at Sam Wealth in Glasgow.

“However, even for a basic rate taxpayer the 20 per cent tax relief is such an attractive incentive. How long does it take to turn £80 into £100 in an ordinary investment?” he said. “It happens instantly with tax relief on a pension contribution and the argument gets stronger with higher rates of tax.”