Taxes are increasing
From April 2010 the top rate of income tax of 50% (42.5% on dividends)
will be payable on income over £150,000.
In addition, the gradual withdrawal of the personal allowance
for those with incomes of £100,000 or more, and the restriction
of higher rate tax relief for pension contributions for those
with incomes of more than £150,000 (from April 2011) will
increase the tax burden on higher income earners, with marginal
tax rates as high as 60% in some cases.
The time to plan is now
Now is the time to review your tax situation to make sure that
you don’t inadvertently end up with a big tax bill.
Income
One option may be to bring forward as much income as possible
into the current tax year (ending 5 April 2010) so that it is
subject to the current top rate of 40% (32.5% for dividends).
As well as increased dividends and bonus payments, other possibilities
are the realisation of gains on unapproved share schemes, or,
for non-doms, income remittances.
On the other hand, bear in mind that these actions will also
bring forward the date on which tax needs to be paid (in most
cases to 31 January 2011), which could also have cashflow implications.
For sole traders and partners, strategies to maximise profits
taxable at 40% rather than 50%, including changes to the accounting
date, could be considered.
Capital Returns
For those subject to the new higher tax rate, the differential
between income tax and capital gains tax rates will be 32% from
6 April 2010 (Capital Gains Tax remains at 18%). This increases
the already significant tax advantage of capital gains over income
returns.
This will put a stronger focus on investment vehicles for trading,
property or general investment activities, as well as tax efficient
profit extraction techniques.
In general, it is important to look at all potential income and
capital gains and consider whether it could make sense to try
to realise them in the current tax year. This is our advice to
clients every year but is obviously given added significance by
the changing tax rates.
Likewise, the way assets and investments are held across the
family should also be reviewed for efficiency.
Employees
With the tax benefit of pension saving being reduced for high
earners, now is also a good time to look at employee remuneration
strategies. Options to consider include share based rewards and
alternative (non-pension) savings arrangements.
Find out more about our tax strategies
Please contact us on 0845 652 5220 about your specific circumstances
or use our contact form.
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