There is a well known saying that: “time and tide wait for no man” – and as we have entered 2010 already, the 6th of April is fast approaching, meaning that we’re about to see the introduction of a 50% tax rate and are now only weeks away from the UK moving back into the realms of being a very high tax country.
There has been much discussion in the media about how the full impact of this tax increase can be averted, with some individuals, companies and even business sectors putting active plans in place to leave the UK altogether.
However, we thought we’d ask an expert whether you can avoid the UK income tax rate increase without having to move abroad…because whilst we appreciate that those who can actually will relocate, we’re well aware that not everyone is in a position to emigrate.
Lee Byers has teamed up with the UK/US tax advisory specialists, we can tell you all you need to know about the 50% tax increase, and how you may be able to save yourself substantially from the full impact of this deadly tax charge.
To remind you of the main features of the tax changes that are due to come into effect in April: -
• The new top income tax rate of 50% will apply to those with incomes over £150,000 from the 6th of April 2010.
• There will be a phased elimination of personal allowances – finally reaching zero – for those with incomes exceeding £112,950.
• The National Insurance employee rate rises, and for individuals from the 6th of April 2011 this will be increased to a 2% levy in place of the current 1% on income above the main table rate. For employers the rate of charge will increase to 13.8%.
• The effective marginal rate where UK National Insurance, as well as income tax is due, will rise in the next year or so from 41% to 52%.
The ability to legitimately shelter from the full consequences of these charges is being further diminished. The generous UK tax relief on pension contributions that has been available since April 2006 has been restricted significantly for those with incomes of at least £150,000 per annum.
Whilst these rules will only apply from the 6th of April 2011, measures were introduced in the last Budget on the 22nd of April 2009 to discourage anyone who will be affected from increasing their contributions beyond their regular contribution patterns already in place. The last Pre-Budget Report followed up on this in December 2009 to bring about further changes that now bring taxpayers within these special anti-forestalling rules where their income exceeds £130,000.
For these measures, (and for the banking sector in general as well), the payroll tax has had a significant impact on the thinking of individuals, businesses, and advisors looking again at what can be done to mitigate this higher rate tax charge.
Amongst possible solutions that may be considered is the advancement of income or profit shares pre-5th of April 2010. Where scope exists, this might involve designing subsequent deferral mechanisms into Employee Benefit Trusts (EBTs) and Employer Funded Retirement Benefit Plans (EFRBs). For some organisations this may mean maximising share incentives where capital gains (currently charged at 18%) can be maximised either under approved plans, or by designing incentive restrictions with a prospectively small income tax burden at present, in favour of longer term capital gains tax on growth thereafter.
Those who are now, or who have in the past been taxable in the UK on the remittance basis, have an opportunity to accelerate income through making remittances to the UK before the 6th of April. Particularly where that income has already been subject to US tax, the UK savings that can be achieved through remitting before the 6th of April can be substantial, but the wider issues involved may be complex and so we urge that this type of year-end planning be addressed as soon as possible with the help of a qualified and experienced taxation adviser.
The ability to plan against full exposure to the new higher rates of tax has become more difficult – but the desire to pursue a capital gains tax rate of 18% in the UK becomes more powerful whilst this increased differential between income tax and capital gains tax rates lasts.
