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Tax on investments confuses millions

13 November 2009 / by Andy Davies

Investors are needlessly giving money to the taxman because their savings and investments are not tax efficient, according to a new report.

Fidelity International has revealed that an estimated 33 million UK taxpayers are confused about tax, which it claims has led to people paying unnecessary taxes on returns from their investments.

The report suggests that 38 per cent of Brits with savings have not made any attempts to make themselves more tax efficient, while a quarter of savers believe there is nothing they can do to reduce their tax liability.

Meanwhile, 41 per cent of Brits have said their taxes have increased over the past five years, with 63 per cent saying they expect their taxes to rise even further in the next five years.

Despite this, Fidelity has found that only 15 per cent of savers have utilised tax efficient savings and investments to help reduce their tax liability.

Following these findings, Fidelity is now urging savers to shelter their savings from the taxman in a tax efficient wrapper like an ISA.

According to the financial provider, a basic rate taxpayer could keep an additional 31 per cent of their returns by using an ISA, while a higher rate taxpayer could keep 84 per cent and for those who will be hit by the new 50 per cent rate, they could see their returns increase by 126 per cent.

Commenting, Paul Kennedy, head of tax and trust planning at Fidelity International, explains why understanding how taxes work is so crucial.

"Well, just as the Government takes a slice of your earnings in tax so too does it take a slice of the returns you make on savings and investments. By planning our savings and investment wisely, we can make them more tax efficient.

"Tax efficient, simply means arranging things in a way so that we keep the tax on our savings and investments to a minimum...and that means more for us and less for the taxman," he said.

Before adding that if people do not have "some level of understanding" then they "could be throwing money away".

© Fair Investment Company Ltd

 

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†† Income payments are dependent upon the FTSE 100 Index.

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