Holly Thomas This equates to an average of around £440 per taxpayer.
Despite the huge tax wastage sum, 88% of people state they have done nothing in the past 12 months to reduce the amount of tax they pay, rising to 91% of women.
The top area for tax wastage is tax credits, with over £8.5 billion being wasted through people failing to claim their child benefit, child tax credits, working tax credits and pension credits.
The second highest area of wastage is inheritance tax (IHT), with £1.3 billion being wasted either by making mistakes when it comes to IHT planning or which could have otherwise been avoided by simply putting some basic tax planning in place.
Everybody has an IHT allowance of £325,000, which means you won't pay tax if the value of your estate is below that.
Married couples can also transfer that allowance to each other, effectively doubling it to £650,000 between them.
Don’t forget to make use of a number of simple IHT planning strategies. You can give away gifts worth up to £3,000 in total in each tax year and these gifts will be exempt from Inheritance Tax when you die. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don't use it in that year, the carried-over exemption expires.
You can make small gifts up to the value of £250 to as many individuals as you like in any one tax year.
The amount of tax wasted means that each year the day during the year when we stop working to pay the taxman and start working to fill our own pockets, becomes later.
“This year’s Tax Freedom Day reveals that for 149 days of the year – from January 1 to May 29 – every penny earned by us will be essentially paid to the taxman rather than ending up in our own wallets,” said Karen Barrett, chief executive of unbiased.co.uk which published the study.
“With so many of us admitting to doing nothing at all to tackle our tax waste mountain, it is not surprising that Tax Freedom Day ends up being later every year.”
Sorting out your tax affairs can be a relatively quick and simple thing to do.
An independent financial adviser is perfectly placed to go through your finances and your individual circumstances to see whether there are any areas where you are currently not being tax efficient or where you could claim tax back from the government.
But there are things you can do yourself to ensure you’re not handing over more tax than you need to.
Mike Horseman, adviser at Cockburn Lucas Independent Financial Consulting, said: “We would look at a range of planning opportunities such as looking at the new issue of National Savings index-linked certificates for higher rate tax payers as well as maximizing ISA allowances for income.”
NS&I's five-year index-linked savings certificates allow savers to invest up to £15,000 per person. They guarantee that your investment will rise in line with the cost of living and they pay the inflation rate as measured each year by the retail prices index (RPI) plus an average of 0.5% over the five years - all tax-free.
Each saver can put away up to £10, 680 into an ISA, with £5,340 in cash, and the remainder (or the total) in stocks and shares.
By not using up the allowance, it is estimated that £36 million in tax-free interest is being wasted, according to Unbiased.co.uk. Yet many still shy away from the risks of the stock market.
Investing in the stock market has outperformed cash over the longer-term, for at least the last five years.
Written by Holly Thomas, this article was first published on May 25, 2011. Holly's opinions are her own and for general information only. Always seek independent, professional, financial advice.