Bespoke – Grant Thornton

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relief withdrawn from 2011, although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