Taxes are an inevitable blight on our lives. And, while it could be argued that they are fair since they fund most of the public services we rely on, that doesn’t make them any easier to pay. And some are definitely more difficult to swallow than others. Here’s a look at the taxes that Brits hate the most and some ways to legally avoid them.
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Which types of tax do Brits hate the most?
According to a survey of 2,000 people conducted by Opinium for Hargreaves Lansdown, the tax that Brits despise the most is inheritance tax (IHT), with one in four people (24%) putting it at the top of their list of most disliked taxes. IHT is basically a tax that is paid on your estate when you die.
Despite the widespread disdain for IHT, just 4% of individuals actually pay it. In fact, out of the £334.3 billion worth of tax collected by HMRC between April and September this year, just £3.1 billion was IHT.
So what’s behind Brits’ huge dislike of inheritance tax?
Well, according to Sarah Coles, personal finance analyst at Hargreaves Lansdown, it’s not a specific irritation with how this tax affects them but rather an ideological resentment. “People don’t like to think of money they’ve already paid tax on being taxed again, and they want their loved ones to benefit from their legacy rather than the taxman,” says Coles.
Coming in second place in the list of most hated taxes is tax on income, including income tax and National Insurance (17%). Third place is jointly held by taxes on spending and investments, both at 15%.
Meanwhile, one in ten people said the so-called ‘sin’ taxes (i.e. taxes on things such as alcohol, tobacco and sugar) as their most hated taxes.
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Can you legally avoid paying tax?
Yes, you can. There are a few ways to legally avoid paying some of the taxes that you don’t like – or at least reduce the amount you pay.
IHT
When it comes to IHT, you can avoid paying more than you need to by taking advantage of several exemptions.
For example, every year, everyone gets a gift allowance, meaning they can give away up to £3,000 without paying tax. This £3,000 annual allowance can actually be rolled over. So, if you fail to use it for one year, you can give away £6,000 the next year. However, it’s important to note that this rollover only lasts one year.
In addition, you can give away small gifts of up to £250 tax free, as well as other specific gifts for family weddings (£5,000 to your child, £2,500 to a grandchild or £1,000 to anyone else) every year.
Another way to avoid inheritance or reduce your bill is by using a potentially exempt transfer. This is a facility that allows you to give gifts of any amount tax free as long as you live for at least seven years after the gift is made.
Tax on income
There are a couple of ways to potentially reduce the amount you pay in tax on your income.
One option is to pay into a pension scheme. When you make pension contributions, some of the money that you would have paid to the government as tax goes towards your pension. So you reduce your tax bill while at the same time bolstering your savings for the future.
If you are in a marriage or civil partnership, you can also take advantage of what is known as ‘marriage allowance’. This allows your partner to transfer 10% of their income personal allowance (so £1,260) to you. This could help you save up to £252 in tax.
Tax on savings and investments
You can avoid tax on savings and investments entirely by making full use of the £20,000 allowance that comes with an ISA account.
The good news is that couples with ISA accounts can actually transfer savings or investments between them. Both can therefore use their allowances to keep their tax bill to a minimum.
Kids also get an annual ISA allowance of £9,000. So, a family of four can shelter as much as £58,000 in ISAs and not have to pay any tax on their returns.
Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
