Brits are unnecessarily giving away several billion pounds to the taxman

The end of the tax year for individuals is fast approaching.

But it's unfortunate to report that, by the time April 5 has passed, British taxpayers will most likely have given away several billion pounds unnecessarily.

This happens every year. The most common areas where we tend to waste tax include savings, retirement planning, Inheritance Tax, Capital Gains Tax and by not seeking professional help.

Effective tax planning

Effective tax planning is about knowing the personal and business taxes you are liable to pay and acting to legally minimise them.

It is also about maximising your net income and creating opportunities to invest and save tax-efficiently for the current and future needs of your business, your family and yourself.

While there is no doubt that the tax system is complex, you should not let this deter you from a simple goal - keeping your taxes as low as possible.

ISA

One simple way to do this is by using an Individual Savings Account (ISA).

You don’t pay tax on interest on cash in an ISA, or tax on income or capital gains from investments in an ISA.

Research from the Association of Investment Companies (AIC) suggests that fully investing the maximum ISA allowance with a lump-sum investment each year in the average investment company since ISAs were introduced in 1999 - a total figure of £186,560 - would have grown to £436,894 by the end of February 2018.

Meanwhile, if the annual ISA allowance for each year had been regularly invested in 12 equal monthly payments since the introduction of ISAs, investors would have £414,941 - 5% behind the lump-sum investment total.

But AIC added that, when markets were volatile in several years in the decade at the start of this century, regular investments outperformed the lump-sum investment.

Annabel Brodie-Smith, of  AIC, said: “You’d have received nearly £437,000 if you had invested the full ISA allowance each year in the average investment company over the past 19 years, more than double the amount invested. Those who chose to regularly invest their ISA allowance wouldn’t be far behind, with their pot now worth nearly £415,000.

“Lump-sum investment company ISA investments tend to outperform regular monthly investing because there is more money invested and working away from day one.

"However, regular investment may be more suitable for investors who do not want to worry about the right time to invest.

"Regular investing allows investors to buy more shares when prices are low and less shares when prices are high, which helps smooth out the highs and lows of markets.”

Personal financial planning

If you are planning your financial future, Aberdein Considine can offer you the support of some of Scotland's most talented and respected independent financial advisers.

Click here to get in touch with one of our financial planning experts.