Brits in the dark about tax allowances
As the end of the tax year approaches, new research from HSBC reveals that more than eight in ten Britons are unaware of the changes that come into effect on 6th April and the majority do not know the tax-free allowances currently available to them on both their incomes and savings. There is also a distinct lack of awareness among lower income earners - the very people these allowances benefit the most.
Tax on savings
The survey of 2,000 UK adults showed that two thirds (65%) of people do not know the current Cash Isa allowance is £5,100 while more than eight in ten (82%) of people are unaware that this allowance rises to £5,340 in April.
Almost half (47%) of people think it is always compulsory to pay tax on your savings, unaware that if they have not earned more than the annual personal allowance this is not the case. A further 93% of people are unaware that you are able to claim back tax paid on your savings from HMRC in the same way you would claim income tax if eligible.
Furthermore, 85% of people questioned did not know what an R85 form is, and worryingly this is true of 88% of unemployed people and 80% of retired people; despite this form being most applicable to them to ensure they are not paying unnecessary tax on their savings.
Income tax personal allowances
Almost two-thirds (72%) of people did not know that the current tax-free personal allowance on income for those aged under 65 is £6,475 while 84% were not aware that this allowance is rising to £7,475 from April.
Worryingly this is true of a startling number of people who are earning below the threshold and should not be paying income tax. Almost eight in ten (79%) of those earning less than £5,000 a year and 70% of those earning less than £10,000 a year did not know the current personal allowance - despite being most likely to benefit from it. A further 86% of those earning less than £5K and 91% of those earning less than £10K also did not know what this will allowance will change to in April.
Tax Year 2011/2012 - 6 Need to Know Changes from April 6th 2011
The income tax personal allowance for those aged under 65 will rise from £6,475 to £7,475 for those earning less than £100,000
The income tax personal allowance for those aged 65-74 will rise from £9,490 to £9,940 for those earning less than £24,000
The income tax personal allowance for those aged 75 and over will rise from £9,640 to £10,090 for those earning less than £24,000
The higher rate tax band of 40% will be lowered from £37,400 to £35,000
The taxable savings rate will rise from £2,440 to £2,560
The total ISA allowance rises from £10,200 to £10,680 and Cash Isa allowance rises from £5,100 to £5,340
Income tax personal allowances for over 65s
There is also ignorance of the additional allowances available to those aged over 65. Eighty-four per cent of adults did not know that the tax-free personal allowance for those aged between 65 and 74 is £9,490 and 93% did not know that for those aged over 75 this is £9,640. A further 91% of adults did not know that the tax-free personal allowance for those aged between 65 and 74 rises to £9,940 from April and 92% did not know that for those aged over 75 this will rise to £10,090.
Among those this is most relevant to, 73% of those aged over 55 did not know the tax free allowance for 65-74 year olds and 88% did not know the allowance for over 75s.
Richard Brown, Head of Savings at HSBC, comments: "It is essential that we are aware of the tax thresholds as this could make a big difference to the interest we earn on our savings and the tax we pay on our earnings. This is especially true for those on lower incomes or the older generation who could possibly reduce or escape altogether the tax they are currently paying."
Regional Findings
People in the North East are least aware of their tax allowances - 92% do not know what the Cash ISA allowance will be from April, 88% do not know the personal allowance for those aged 65-75 and 79% do not know the personal allowance for under 65s.
West Midlanders also have low awareness levels - 71% do not know the current tax free Cash ISA allowance, 92% do not know the current tax free personal allowance for under 65s and 97% do not know what the personal allowance for those aged between 65 and 74 will be from April.
People in the East of England are most likely to know what the current Cash Isa allowance is (42%) while Scots have most awareness of any regions of the increased allowance from April (29%).
The Welsh are most likely of any region to know the current personal allowance for tax-free income, while Scots are most aware of the changes to this from April (22%).