Tax planning for High Earners
Some major changes to personal tax were announced in the recent Budget and these will have costly implications for high income earners. As implementation of these changes commences we are here to help you control your tax position and ultimate tax liabilities.
The new highest rate of income tax for taxpayers with income in excess of £150,000 per annum is introduced with effect from 6 April 2010. From the same date, annual personal tax free allowances are reduced for the highest earners resulting in an effective tax rate of 60% on taxable income between £100,000 and £112,000. New restrictions on tax relief available on pension contributions are intended to take effect from April 2011 with transitional rules already in place to prevent attempts to make irregularly large contributions in the intervening period.
Employers should consider incentivising high earning staff with share incentives rather than salaries or bonuses. This could result in employees paying capital gains tax (CGT) on a future disposal of shares at a tax rate as low as 10%* instead of an effective tax rate on salaries and bonuses as high as 50% or even 60%. In the continuingly challenging economic climate, employers would also benefit from the cash free nature of share incentives.
With a CGT rate of 18-28% there is potential for substantial tax savings if income can be taken in the form of Capital Gains. Accordingly taxpayers with assets producing income that may be taxed at the new higher rates could consider investing in assets geared to producing capital gains rather than taxable income eg properties with mortgages - the benefit of the mortgage being that the interest payable reduces the taxable income. Investing in small high risk companies taking advantage of the tax breaks offered by the Enterprise Investment Scheme may also be beneficial.
Business owners approaching retirement could particularly be affected by the above changes but are also well placed to mitigate any resulting tax increases by using the various options that their impending exit offers them in preparing a tax efficient exit strategy.
In summary significant savings are possible with proper planning. Those potentially affected by the above measures do however need to take early advice to ensure that they maximise tax saving opportunities. Subject to any future Budget changes of course.
If your income exceeds £100,000 and you are concerned about the level of tax you are paying please do get in contact and we will advise if there are any ways you can control the Tax and National Insurance costs you are paying.
We are so confident we can make tax savings for you and your business, we are pleased to offer a 'no strings' review of your current arrangements without charge 
