In this second article of a two-part series, Anne Smith, tax partner at Watts Gregory LLP, offers some tax planning ideas to help businesses and their owners take advantage of a relatively benign tax regime. The first article, in the Western Mail on February 17, explained how recent economic figures indicate that we should be looking at tax planning now, as we may be on the brink of much higher UK taxes to come. To see the earlier article and to find out more about tax-saving ideas please contact Anne or visit www.watts-gregory.co.uk There has been much speculation about the likelihood of forthcoming draconian tax rises, and in what area will they hit.
We already know about the 50% top income tax rate, the withdrawal of the personal allowance for higher income earners, restriction of relief for pension contributions, and the increase of National Insurance costs by a full 1% for employers, employees and the self employed from April 2011.
Is it possible to plan to limit your tax exposure? The answer is generally yes, but the way you go about it depends on various factors - whether you expect to be a higher rate taxpayer or a super higher rate taxpayer, on your current circumstances and financial needs, your personal and business plans and financial expectations, and whether protecting cash flow or absolute costs takes priority for you.
The following is just a smattering of ideas that are interesting some of our clients in this period of grace before the new tax year.
FOR BUSINESS OWNERS: Incorporating all or part of the business to trigger capital gains at the current 10% rate Incorporating part of the business so that some of the future profits are built up at lower company tax rates until needed personally Drawing large dividends now from companies sitting on accumulated profits, because the dividend tax rate for the super-taxpayers is about to go up in April by more than 10% - perhaps lending the cash back into the company if needed for the business Structuring ownership of the property used for the business so this is still tax efficient FOR INDIVIDUALS: Spouses restructuring investments to spread income between husband and wife to maximise use of annual exemptions and lower tax bands Considering plans for retirement funding - for those with a pension fund, the strategy for drawing on that fund to minimise tax costs Planning to control the tax costs of family trusts - trusts are very useful for many reasons. …