New 50% tax rate

Danger!  50% tax rate is on its way.  What can you do?

The top rate of tax becomes 50% on incomes above £150,000 from the 6 April 2010, (more if you include National Insurance on earned income and the loss of tax relief on pension contributions).

It is possible to plan for this tax increase, provided any planning is implemented in good time.

Ideas to help avoid the new rate are set out below:

• Personal tax to corporate tax – incorporating your business can reduce the immediate tax on income from 50% to 21%. There are several imaginative ways to extract cash from the company.
• Personal tax to capital gains – By re-categorising income into capital, it is possible to reduce the tax rate from 50% to 18%. There is a range of ideas depending upon individual circumstances.
• Timing – as we have been given advance warning of the change, it is possible to consider the timing of certain events to mitigate the increased tax burden. Can you bring income forward into this tax year?
• Loss planning – there are a number of ideas to obtain a loss carry back for up to three years. They can be aggressive and may require a time input by the individual to achieve the loss relief.
• Emigration – some clients may consider this as a solution. Anyone contemplating this must take advice now.
• Pensions and Employee Benefit Trusts – there are a number of tax effective alternatives to pensions that can be attractive and provide flexible structures for future planning.
• Unincorporated businesses – If you are self employed you may be already earning income potentially taxable at 50%.  A change of accounting date may reduce the overall amount of tax payable but again advice is needed.

Please contact Andy Scott if you would like to discuss your own personal circumstances.