lwm consultants - £100,000 trap

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Investors in Values LWM Consultants Ltd. £100,000 Income Trap

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If your global income is more than £100,000 (that is any PAYE earnings plus any other income) then you should check this presentation out.

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Page 1: LWM Consultants - £100,000 Trap

Investors in Values

LWM Consultants Ltd.

£100,000 Income Trap

Page 2: LWM Consultants - £100,000 Trap

“if your adjusted net income exceeds £100,000 you could be in for a shock…..”

Page 3: LWM Consultants - £100,000 Trap

Budget changes – 5 April 2010

• Personal tax free allowance will be withdrawn by £1 for every £2 that adjusted net income is over the £100,000 limit

• Income is made up of for example:o Earnings from employment and / or self

employmento Most pension incomeo Interest on most savingso Income from shares (dividend income)o Life policy chargeable event gaino Rental incomeo Income received by an individual from a trust

Income = global income not just PAYE Income

Page 4: LWM Consultants - £100,000 Trap

Example – earnings £124,000

Old Rules New Rules

Nil Tax £7,475 Nil

20% tax £35,000 £35,000

40% tax £81,525 £89,000

Tax due £39,610 (31.94%)

£42,600 (34.35%)

Reduction in take home pay

£249.16 per month

Page 5: LWM Consultants - £100,000 Trap

Making the allowance work for you

• Rather than making the allowance work for the tax man, you can make it work for you

• Examples of what can be offset against your income:o Gross pension contributions including salary

sacrifice o Charitable donations (gift aid donations, gifts of

shares or property)

• And if you own your business you can spread your income to lower rate tax payers in your family

Page 6: LWM Consultants - £100,000 Trap

Example A– earnings £124,000

• Assuming your net adjusted income is £124,000 in 2011 / 12

• You are paying £2,000 a month to your pension

Page 7: LWM Consultants - £100,000 Trap

Example A– earnings £124,000

No pension Paying a personal pension contribution

Taxable Income £124,000 £124,000

Personal Allowance £0.00 £7,475

National Insurance £5,861 £5,861

Tax £42,600 £34,810

Employee pension contribution (net)

£0.00 £19,200

Net income £75,539 £64,129

Effective tax relief 52%

Page 8: LWM Consultants - £100,000 Trap

Example A– benefits

• Retains personal allowance, so doesn’t have to pay additional tax

• A contribution of £24,000 costs just £11,410 in real terms (i.e. 52% tax relief)

• i.e. the allowance is now working for you

Page 9: LWM Consultants - £100,000 Trap

Example B– earnings £124,000

• Assuming your net adjusted income is £124,000 in 2011 / 12

• You arrange for your pension contribution to be paid as a salary sacrifice so the net income is the same as if you were paying the contribution

Page 10: LWM Consultants - £100,000 Trap

Example B– earnings £124,000

No pension Pension Contribution paid via salary sacrifice

Taxable Income £124,000 £99,172

Personal Allowance £0.00 £7,475

National Insurance £5,861 £5,364

Tax £42,600 £29,679

Employee pension contribution (net)

£0.00 £0.00

Net income £75,539 £64,129

Employer contribution

£0.00 £28,254

Effective tax relief 59%

Page 11: LWM Consultants - £100,000 Trap

Example B– benefits

• Retains personal allowance, so doesn’t have to pay additional tax

• Pension contribution increases by £4,254 to £28,254

• Cost of contribution of £28,254 is just £11,410, effective 59% tax relief

• i.e. the allowance is now working for you

Page 12: LWM Consultants - £100,000 Trap

Next step• We are not tax experts but we don’t want you to

fall into the trap

• Speak to your accountant and discuss the best solution with them

• Plan now and avoid a nasty shock

Page 13: LWM Consultants - £100,000 Trap

LWM Consultants Ltd are not tax advisers. This is based on our understanding of current UK tax laws which may be subject to change. The NI, tax and allowances

are based on the 2011 / 12 tables. If you require further advice we would recommend you speak to your accountant.

LWM Consultants Ltd is an appointed representative of Sense Network Limited, which is authorised and regulated by the Financial Services Authority. Registered in England and Wales under Company Number 07408315. Registered Office: The

Garden Suite, 23 Westfield Park, Redland, Bristol, BS6 6LT