Tax Solutions For High-Earners

Last month’s Budget was a blow for those with income of £150k or more.  Increases to the rate of National Insurance, a reduction in personal allowance and the freezing of the annual pension allowance represent a significant additional tax cost for many individuals.

HURST is working proactively with its clients to mitigate the impact of these changes before April 2010.

What are the changes?

From April 2010

Income tax:

The basic personal allowance will be reduced to:

• One half for those with income between £100k and £140k
• Zero for those with income over £140k
• A new 50% income tax rate will be introduced for income (other than dividends) over £150k
• A 42.5% tax rate for dividends will be introduced for income over £150k 
• There will be an increase in the trust rate to 50%, regardless of income levels.

From April 2011

National Insurance:

• Class 1 employee rate will increase by 0.5% to 11.5%
• Class 1 employer rate will increase by 0.5% to 13.3%. 
• Class 4 rate for the self-employed will increase by 0.5% to 8.5%.

Pensions: 

• Higher rate tax relief on pension contributions for those with income over £150,000 will be restricted from 6 April 2011 
• The annual allowance will be frozen from 6 April 2011 until 2016 at £255,000.

How can we help?

We are already working with several clients to accelerate income into the 2009/10 tax year. If you are considering doing something similar you should be seeking professional advice now.

There is also a number of ongoing tax planning opportunities that you should look to address. Examples might include:

• Voting to pay dividends early
• Bringing discretionary trust distributions forward
• Transferring income sources between spouses
• Changing the pension input period
• Closing annual interest accounts prior to the tax year end
• Change the year end date if self employed
• Reviewing existing trust arrangements
• Incorporating if you are a sole trader
• Deferring tax deductible expenditure until 2010/11
• Not claiming capital allowances on eligible capital expenditure
• Implementing a new tax-efficient share incentives plan
• Retaining profits within the business
• Consideration of tax schemes from specialist providers.

Seminar

HURST is planning to hold a free breakfast seminar on this topic on Thursday 2^nd July at our Stockport office. If you would like to attend, please contact Jo Flynn on 0161 477 2474 or simply reply to this email with the work “book” in either the subject line or main body.

Disclaimer: This article does not constitute professional advice.