Last year the chancellor announced a new 50% top rate of income tax for those earning over £150,000 a year. Regardless of who wins the next election, the pressures on tax revenues suggest, in the short term, the new top rate is here to stay. Whilst the headlines have focused on the new 50% top rate, the new income tax rules go a lot further and provide a triple whammy.
The new rules have a three way effect:
- the new 50% top rate for those earning income of over £150,000 per annum;
- tapered loss of personal allowances for those earning over £100,000 per annum;
- removal of higher rate tax relief on pension contributions for those earning over £150,000 per annum (subject to detailed rules).
Therefore anyone earning over £100,000 a year should review their income to see how their income can be restructured to avoid, or at least mitigate, the triple jeopardy.
Whilst the Budget also brought in antiforestalling rules to prevent people making increased pension contributions to avoid the new tax charges, there are a number of strategies available for those affected to reduce their income tax exposure and preserve both of their personal allowances and higher rate tax relief on pension contributions.
Whether you are a business owner, executive or an employee there are a number of ways to plan your income and maximize your tax efficiency.
For companies
Business structures should be reviewed to see whether they are tax efficient. Trading and professional partnerships should be reviewed to see whether incorporation to limited company status provides tax savings. Payroll and remuneration packages can be structured to make significant savings for both companies and employees. There are a number of approved schemes for drawing monies from a company in a highly effective manner.
Whether using salary sacrifice arrangements, employee benefit trusts or incorporation of a business, significant tax, national insurance and payroll savings can be made.
Private individuals
Private individuals can plan their affairs to reduce their income tax liability. For married couples and civil partners, assets can be reviewed and assets passed between spouses and income sharing ratios of joint assets altered to ensure income yielding assets are weighted in favour of the spouse or partner with the lower income.
Wright Hassall’s Asset Sharing Plan can help couples to change the ownership ratio of joint assets to make tax savings without the need to alter the title at the Land Registry or transfer the legal ownership of assets.
Individuals should seek to maximize their annual allowances in cash ISAs and stocks and shares ISAs to utilise their tax free allowances.
Over the coming weeks Wright Hassall will be providing advice and tax efficient planning for companies and private individuals to ensure income tax is minimized and tax relief and personal allowances maximized. If you would like to receive more information on how to minimize your income tax exposure or our income tax and national insurance mitigation strategies please contact John Dormer on 01926 884626 or John Rouse on 01926 880743.
