Tax Planning Seminar 3 November 2009

INTRODUCTION AND AGENDA

Tim Page

Taxation calendar – When do I start working for myself?

Taxation calendar – When do I start working for myself?

Taxation calendar – When do I start working for myself?

AGENDAWelcome

• Economic Insight, Richard Jeffrey (Cazenove Capital)

• Tax Planning, Richard Holme (Creaseys)

Break

• Kathy Gore, Friends of East Sussex Hospices

• Investment Aspects, Peter Jackson (AWD Chase de Vere)

• Business Structures, Elizabeth Robertson (Creaseys)

Drinks and canapés

PLANNING TO AVOID 50%

……….. AND 60% TAX

Richard Holme

From April 2010

Income Tax

• 50% rate – income £150,000

• 60% rate – income £100,000 - £112,000

• Dividend tax : 25% 36.1%

• Trust tax: 40% 50%

Capital Gains Tax

• 10%/18% ????

KEY CHANGES

From April 2011

• 0.5% NIC hike

• (Freezing of annual pension allowance of £255,000 and lifetime allowance until 2016)

• End of higher rate tax relief on pension contributions for some

MORE CHANGES

MARGINAL TAX RATES ON INCOME

%

70

60

50

40

20

0

Mar

gin

al t

ax r

ate

50 100 150Income £’000

• Accelerate income?

• Extract cash surplus

• Borrow to extract assets

• Pay tax now …………… withdraw later

• Defer gift aid, loss claims etc

• Have a year out of UK?!

ALL IN THE TIMING

• Offshore insurance bond

• (Pension)

• Enterprise Investment Scheme

• Venture Capital Trusts

• ISA’s

• Other ‘wrappers’ ?

TAX EFFECTIVE INVESTMENT

• How long will 18% CGT last?

• Structured products

• Single Purpose Vehicles

• Collective / captive

• Investment / trading

INVEST FOR GROWTH TAXED AT 18%

• Discretionary / old A & M Trusts – 50%

(57% - income tax - dividends!)

• Also 10 year IHT charges

• Convert to life interest?

• Review future now of all trusts and remember non tax purposes

WHITHER TRUSTS?

• Affects those with income in current

or previous 2 years of £150,000 +

• No higher rate relief from 6 April 2011

• Tax charge on employer contributions from 6 April 2011

• How to fund retirement?

PENSION RELIEF – NEW REGIME

• George earns £300,000 pa and his employer contributes 3% to his pension. He puts in 5%

• Tax charge £300,000 x 3% x (50 – 20) % = £2,700 payable by George

• George only gets 20% relief on his contributions (£4,500 less tax relief)

• Additional tax £2,700 + £4,500 = £7,200

EXAMPLE

• Lower of - £20,000 and

Higher of - £30,000

- average contributions

to MP schemes in last 3 years

• Regular monthly / quarterly contributions count towards

• £20,000 and may rank for higher rate relief beyond this

if existed at 6 April 2009

PENSIONS TRANSITIONAL RELIEF TO APRIL 2011

Beryl has £1m cash and owns Burton Ltd a trading company from

which she takes a regular dividend of £100,000 as well as

£170,000 salary. She owns an investment property occupied rent

free by her mother and her investment in shares of £60,000

subscribed in her Uncle John’s company Reckless Limited has

become worthless.

She is married to Bob who works at IBM for £75,000 salary. He

supports several charities, donating £10,000 pa.

Beryl would like to gift the property to her daughter?

Bob and Beryl would like to invest more in pensions (£30,000).

TRANSFER INCOME AROUND FAMILY?

£

Offshore bond for cash 20,000 (pa)

Defer Reckless Ltd loss claim 6,000

Beryl to make charity donations not Bob 1,250

Bob makes pension contributions not Beryl 6,000

Bob has ½ dividend 5,550 (pa)

£38,800

POTENTIAL TAX SAVINGS – BERYL / BOB

FRIENDS OF EAST SUSSEX HOSPICES

KATHY GORE

BUSINESS STRUCTURES IN

THE CURRENT CLIMATE

Elizabeth Robertson

• Traditional partnership

• Limited liability partnership

• Limited company

• Hybrid structures

THE CHOICE IS YOURS………

• Commercial considerations

• Administrative burden

• Tax/NIC

• Profits ………… aim to retain or distribute?

SO WHICH IS BEST?

2009/10

Tax Company LLP

On profits retained 21% - 28% 41%

On profits distributed 41.5% - 47.7% 41%

On capital profits 21% - 28% 18%

TAX COMPARISON

2010/11

Tax Company LLP

On profits retained 22% - 28% 51%

On profits distributed 50.17% - 56.56% 51%

On capital profits 22% - 28% 18% ?

TAX COMPARISON

• Reassess the best structure for the future

• Make an LLP more tax effective?

• Use of service companies

• Corporate partners

• Or is it time to incorporate?

WINDOW OF OPPORTUNITY

• How to extract in a tax efficient way

• Dividends or bonus – cashflow and tax

implications

• Who are the shareholders?

• Effect of dividend on share valuation

CASH OUT !

2009/10

CT rate Dividend Bonus % %

SCR 41.5 47.7

Marginal 47.13 47.7

Full 46.0 47.7

40% tax payer

COMPARISON

• Buy back shares of minority investors

• Other methods – benefits, pension contributions

• More aggressive planning – the providers, risks, rewards

OTHER OPTIONS

Thank you for attending The Partners & Guest Speakers