Last minute tax planning before 5th April 2010
With 5th April fast approaching, it is important to ensure that you make the most of the planning strategies available to you and this short guide considers some key strategies to implement in light of the changes announced.
Please click on the links below for each section:
- 50% income tax rate
- Pension planning strategies
- An alternative business structure – LLP's
- Company Vehicle Planning
- Furnished Holiday Lets
- Individual Savings Accounts – ISA's
The new 50% income tax rate
Whilst the headlines have been grabbed by the incoming 50% tax rate for individuals with income over £150,000, you will also be affected if your income is in excess of £100,000 as you will start to lose your entitlement to personal allowances from this point.
By bringing forward your income to the current tax year (possibly by taking additional dividends), or by changing your business structure (please also see the Limited Liability Partnerships section below), it may be possible to prevent your taxable income from exceeding these levels next year, ensuring you receive the full relief you are entitled to.
If you have any concerns, please contact us to discuss strategies available to you which could minimise the impact of these new income tax rates.
Pension planning strategies
The UK pension system is facing a number of significant changes, including plans to restrict tax relief on pension contributions for earners with income above £130,000, and the introduction of new legislation to prevent individuals circumventing these restrictions prior to 5th April 2010.
The new rules are quite complex and can be confusing. You can continue to pay up to £20,000 per annum without being affected by the new rules and in certain circumstances you can pay more than this if you have previously been paying a higher amount on at least a quarterly basis each year.
If caught by the new legislation and you wanted to make an additional contribution to your pension, to enable you to receive the optimum tax relief on the contributions made one option could be to keep any payment made prior to 5th April below £20,000 and pay the difference after this date. There are however other ways in which you can maximise your tax relief.
We can provide you with advice on your retirement planning needs and how the new pension rules affect you so please talk to us if you are considering taking action within the next couple of weeks.
Limited Liability Partnerships (LLP’s)
An alternative to trading as a partnership or Limited company, a Limited Liability Partnership (LLP) with a corporate partner arrangement is another option that should be considered by all, and it provides both commercial and tax advantages to many businesses.
If an LLP structure is in place, whatever you want to achieve for your business or the individuals connected to it there is always a tax efficient way to structure things which will meet your requirements. An LLP is also very flexible so that as the tax rules change, your business can easily adapt in conjunction with these with minimal effort or disruption.
If you would like to know more, we hold a regular FREE forum that you are welcome to attend to assist you in the understanding of the advantages that such a structure could bring to your business. Please call Jenny Foster for details of the next forum on 01474 853856 to book your place.
Company vehicles
While the company car remains a valuable part of the remuneration package for many, increasing tax and national insurance costs to both the business and the employees may mean that you need to consider whether your current arrangement represents the most tax-efficient option.
Now could be a good time to consider other forms of ownership, maybe involving a move to personal ownership or to a different business within the overall structure, such as is possible within an LLP.
If you do still want to purchase vehicles via the business, a number of proposed changes to the rules from 6th April 2010 have been announced, from the introduction of preferential tax rates on environmentally friendly cars to higher charges on other vehicles.
These changes could have an impact of the range of cars you choose to purchase and you will need to think carefully about the proposed vehicles and research the CO2 emissions for each one to ensure the most beneficial decision is made. It will also impact upon whether the purchase should be made before or after 5th April and which business medium should be used to make the purchase.
Careful consideration should be entered into before making any final decisions so that from the outset you ensure you put yourself in the best possible tax position. Now may be a good time to review your company car policy and consider if any changes would be beneficial and if any purchases are proposed in the near future we can of course help you to decide on the best course of action.
Furnished Holiday Lets
Tax advantages of FHL's will cease 6th April 2010. You will no longer be allowed to offset any losses made against your other income received. Any loss will instead need to be carried forward and offset against the first available rental profit made in future years.
If you have some repairs to make to your FHL or some purchases to make, we would recommend that you try and spend the funds prior to 5th April 2010 rather than afterwards, so that you can benefit from the current tax breaks available.
Individual Savings Accounts (ISA's)
If you have not already invested in an ISA, you can deposit up to £7,200 per tax year and all the interest earned will be tax-free. If you are over 50, this limit increases to £10,200.
The maximum cash element of an ISA is £3,600 up to 5th April 2010, or £5,100 if you are over 50, and the balance can be invested into a stocks and shares ISA. Alternatively the whole £7,200, or £10,200 if you are over 50, can be invested into a stocks and shares ISA.
Anyone aged 16 and over can open a cash ISA, and anyone aged 18 and over can open a stocks and shares ISA, so encourage your spouse, partner and other family members to save in this way as well.
If you have not already used this years ISA allowance, invest the funds prior to 5th April to maximise the tax free growth that you can achieve from your savings.
For further information on any of the issues raised in this guide, and to discuss more year end strategies that suit your individual circumstances – such as tax-efficient savings and investments, capital allowances and extracting profit from your business – please contact your Principal Adviser.
