Newspaper article The Journal (Newcastle, England)

Take Action to Avoid High Tax; IT IS Not Just the Super-Rich Who Will Be Hit by the Higher Tax Rate Introduced Next Month. SIMON Dobson Looks at Its Effects

Newspaper article The Journal (Newcastle, England)

Take Action to Avoid High Tax; IT IS Not Just the Super-Rich Who Will Be Hit by the Higher Tax Rate Introduced Next Month. SIMON Dobson Looks at Its Effects

Article excerpt

Byline: SIMON Dobson

FROM April there will be a 50% rate of income tax for those "high earners" being paid more than pounds 150,000. Many people may feel that this will not affect them, as they may only dream of having such a high level of income, but this new rate of tax could catch more people than expected.

The new tax rate will apply to many trusts, including those with relatively small amounts of income. This is because the rate of tax applied to all trusts that pay tax at the 'trust rate' will increase to 50%, regardless of the level of income received. What this means is that it may catch people who have set funds aside for children or grandchildren, as well as those who may have left money in a trust in a will.

However, it may be possible to plan ahead in order to avoid paying tax at this rate. Many types of investment products are taxed in different ways. Trustees and beneficiaries of trusts, therefore, may seek investments that are not taxed so highly. One product that could be considered in this way is the investment bond.

Investment bonds suffer tax within the policy wrapper itself. Investors can benefit from returns in such assets as cash, property and stocks and shares, all within the wrapper of the investment bond. As the policy provider, usually a life assurance company, pays tax on the fund directly to HM Revenue & Customs (HMRC), which satisfies a basic rate tax liability, the bonds are easy to administer.

The life assurance company running the investment bond can offset the costs of running the policy against the growth within the fund. As a result, the effective rate of tax within the bond can be even less than the deemed basic rate (for UK bonds) of 20%.

The This will appear very attractive to anyone suffering tax at 50%. The best way to illustrate this is with a case study.

apply including those Doris dies and leaves pounds 100,000 in a trust to provide for her children and grandchildren. …

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