Bespoke â Grant Thornton

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Standby for super 22 If you have asix-figure income, you will be aware that the April budget singled you out as one of its key target areas. A new ‘super-tax’ rate of 50%, loss of personal allowances and significant pension changes could all affect your tax bill. Eric Williams, Grant Thornton’s Head of Private Client, has this advice ILLUSTRATION PETER JAMES FIELD tax rom 6April 2010, it is proposed that entitlement to basic personal allowances for income tax will be reduced for those with higher incomes. These allowances give everyone a‘tax-free’ amount but where gross income (before personal allowances are deducted) exceeds £100,000, the allowance will be reduced by £1 for every £2 of income, until the basic allowance is extinguished. This means those with income of around £113,000 will have no personal allowance at all. But that is not all. From 6April 2010 a new 50% rate of income tax will apply to taxable income above £150,000. The rate applicable to trusts will increase from 40% to 50%. The rate of income tax on dividends for individuals subject to the 50% rate and on trusts will be increased by 10% to 42.5%. This will increase the effective tax rate on dividends received from 25% to over 36%. These changes give rise to some very high effective tax rates. For example, individuals whose income (excluding dividends) falls into anarrow band of income above the £100,000 threshold will have an effective income tax rate of astaggering 60%. The rate increases do not apply to capital gains, which will continue to be taxed at 18% (or just 10% if you can claim www.grant-thornton.co.uk
NEED TO KNOW the very helpful Entrepreneurs’ Relief). This will drive apreference towards having capital gains rather than much higher taxed income, although this is not always straightforward. There are afew ways to achieve this, although, as with all planning, this should only be done in the context of what is appropriate and practical for you. Share incentive schemes are another method that could help reduce income taxable at higher rates. When it comes to pensions, the withdrawal of higher-rate relief for pension contributions will make many revisit their pension plans. Those with income over £150,000 will see higher-rate relief withdrawn from 2011, although complex forestalling rules are already in effect, restricting what you can do now. Under these provisions, an additional tax charge of 20% could be levied with effect from Budget day, 22 April 2009, for contributions above what is perceived to be an individual’sregular (at least quarterly) contribution pattern before Budget day. All is not lost though, as there are many things to consider that might help you keep your tax bill down. For employeeowned companies, it may be possible to pay dividends and suffer alower effective rate of income tax, although this must be considered alongside the corporation tax implications for the company. HM Revenue and Customs approved share schemes are atax-efficient means of providing benefits. They work by way of granting options over shares in a company, which are eventually ‘exercised’, then the shares are sold by the individual. If all the relevant conditions are met, then there is no income-tax charge on the grant or the exercise of the options. On asubsequent sale of the shares there is acapital gain on the difference between the exercise price and the sale price. This enables what would have potentially been an income-tax charge to be converted to acapital gain. If making acapital disposal, you should review the position in respect of Entrepreneurs’ Relief, as there may be simple steps you can take to benefit from a10% effective rate of tax. Incorporation may be an option for high-earning sole traders and partners who would otherwise suffer income tax at 50% on their profits. Provided profits do not exceed £300,000, any retained profits will be subject to a22% corporation tax rate from April 2010. However,there will be further tax charges, as mentioned above, when withdrawing income from the company. As aresult, consideration should be given to whether profits may be retained within the company or if cash will need to be extracted. Non-UK domiciled individuals who may have substantial overseas income may benefit from claiming the remittance basis in order to avoid suffering these higher tax rates. However,the remittance rules are extremely complex and it is imperative that specialist professional advice should be sought in advance of making any claims or returns. YOUR NEXT STEPS It is important to consider what your income position will be after 6April 2010 and 2011. If you are likely to have income in excess of £100,000, is there anything that you can do to restructure the income you receive? Grant Thornton is happy to talk you through the best options for you. Whatever you decide to do, the sooner you can start planning, the better position you are likely to be in. The rate increases do not apply to Capital Gains Tax, driving a preference over higher taxed income ERIC WILLIAMS, Grant Thornton’s Head of Private Client www.grant-thornton.co.uk
Page 1 and 2: Bespoke FOR PRIVATE CLIENTS ISSUE 1
Page 3 and 4: welcome This is the first issue of
Page 5 and 6: ‘Each is different. Some are more
Page 7 and 8: PEOPLE AND PLACES ‘Mechanical eng
Page 9 and 10: DEVIL’S ADVOCATE NO PLACE TO HIDE
Page 11 and 12: FINE ART Art has much to offer the
Page 13 and 14: FINE ART The Hon John Tufton, by Si
Page 15 and 16: INVESTMENT King George Ibecame the
Page 17 and 18: INVESTMENT INVESTING IN TURBULENT M
Page 19 and 20: PROTECT YOUR WEALTH SPARE ATHOUGHT
Page 21: PROTECT YOUR WEALTH The case for aw
Page 25 and 26: LATEST THINKING What to do with cas
Page 27 and 28: ‘All Iask is a chance to prove th

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Bespoke â Grant Thornton