50% Income Tax Alert
The start of the 2010/11 income tax year on 6 April is looming and we will see the largest increase in direct taxation for many years. The 40% top rate of income tax will rise by 25% to 50% and for dividend income, the top rate of 32.5% will rise by over 30% to 42.5%. These rates will apply to income over £150,000.
The Government can no longer meet its budget (deficit) through stealth tax increases alone and all clients need to assess if the changes will affect them and what they can do to minimise the impact. We set out below a number of ideas which clients may want to review further:
- Consider spreading income to other entities such as companies or spouses with lower income.
- Restructure investment portfolios to put in place tax deferral wrappers, subject to capital gains tax considerations.
- Where appropriate, consider early retirement.
- If you have a family discretionary trust, consider making revocable income interest appointments.
- If you are self-employed with a year end after 5 April 2010, consider shifting the year end to 31 March 2010 to have more profit fall into 2009/10. If you are in partnership, a revision to profit sharing ratios may be of benefit.
- Review pension contributions to see if a special annual allowance applies to you for 2009/10 and 2010/11. Consider the possibility of making salary sacrifice arrangements to maximise pension contributions.
- Review the likely impact of the pension changes to you in 2011/12 if you have the benefit of a defined benefit pension scheme. This could be very harsh indeed – start lobbying your MP now.
- Consider advancing the payment of dividends from family companies prior to 5 April 2010 rather than paying them in 2010/11. Similarly, if bonus payments are likely, consider paying these before 5 April.
- Maximise ISA investments.
- Defer Gift Aid payments until after 5 April 2010.
- Consider investing for capital gain rather than income. (But CGT rate may rise.)
- Review life assurance policies and if you are thinking of surrendering these soon, do so before 5 April.
- If you are in receipt of benefits in kind, review these to see if they can be minimised.
- If you try to ‘escape’, by working abroad, make sure you fulfil the conditions for non UK residence. Do not try to escape by failing to declare all your income, penalties for non compliance are harsh.
Chiene + Tait is happy to advise on any of these mattes in greater detail, taking account of your personal circumstances. Please contact Moira McMillan on 0131 558 5800 or email moira.mcmillan@chiene.co.uk for more information.