Is there anything people used to do incorrectly each tax year? Or any advice to newbies wondering what to do?
I’ll go first: I used to save throughout the year and then dump my total allocation into my LISA and ISA on April 6th. This isn’t good because you can likely benefit more from ‘dollar cost averaging’ smoothing out the peaks and troughs of investing. Obviously this doesn’t matter for cash based ISA products.
I assume you mean it was all in cash and then invested on 6 April. Yeah, that would be a bad habit (but far from the worst ), but not for the “dollar cost averaging” reason. A Vanguard study shows invest in lump sum beats dollar cost averaging most of the time. It’s unlikely that you have missed out anything here for that reason. I said it’s a bad habit because your cash will miss out the time in the market.
The better way to do that is invest the cash on a % fee zero commission platform throughout the year, and then bed & ISA at the beginning of each tax year. This way not only your cash stays in the market for longer, you can also carry over losses to reduce your future CGT bill.
Keep records, especially if you may have to fill in a tax return
Already have done for many years. My favourite thing to do is to passive aggressively complain to HMRC in the final text field of “do you have anything further you wish to tell us in support of your submission” and I use that to channel my inner desire for the UK government’s tax technology to be more like that of Estonia. Fully connected, 3 minute filings, auto-reporting.
TBH, I’m not sure that’s the best approach. Data sharing between financial institutions and HMRC may cause some privacy concerns, foreign taxable income will not be automatically included, and the person may not be made aware of any data error until it’s too late. Of course, that doesn’t mean the existing system is the best. Far from it. However, I blame the unnecessarily complex tax rules more than the filing process. On investment side, S104 holdings and equalisation are two examples.
I have to disagree, the data sharing aspects mean that around 97% of Estonian’s complete their tax returns in under 3 minutes. Granted, speed isn’t everything and not everyone has basic tax filing requirements but from experience of running a business, it’s much more complicated than it needs to be.
Yes the UK tax legislation could be much simpler and Gov Digital Services are far superior than the US tax filing services, but I still feel for those who want to connect and share everything, it should be made as easy as possible today.
I think it’s complicated because of the tax rules, not the tax return itself.
Try imagine this whole tax system is just total income from all sources, and a single progressive tax rate system for that. How easy is it to put a total sum in your tax return?
This tax system would be fairer too. Currently so many high earners are paying lower marginal tax rate than the lower earners.
For example, the marginal tax rate for someone earning 1 million per year from only dividends is 39.35% (including the 1.25% point change), yet the marginal tax rate for someone earning 200k per year from employment is 58.25% (tax & NIC combined). That’s 48% more tax paid by the employee on every additional pound earned! It’s getting even worse for the capital gains tax with the entrepreneurs’ relief, which is only taxed at 10%.