Gordon Faragher

19 November 2009

GFP Conference

Personal tax update

GFP Conference

Personal tax update

OverviewOverview

• The economic background

• Future tax rates

• Pensions

• Furnished holiday lets

Planning thoughts

Public finances - receiptsPublic finances - receipts

34%

22%

Public finances - receiptsPublic finances - receipts

£bn £bn

HMRC 442 (last slide)

Car Tax 6

Business rates 23

Council Tax 24

Other 15 68

510

Where does it all go?Where does it all go?

Do the sums add up?Do the sums add up?

£bn

Deficit in FY 08/09 78 (5.5% GDP)

Total deficit at 31.3.09 750 (52% GDP)

Expected deficit in 09/10 175 (13% GDP)

Expected deficit at 31.3.10 925 (64% GDP)

Where does it all go?Where does it all go?

Future tax ratesFuture tax rates

Tax allowancesTax allowances

Age 07/08 08/09 09/10

Under 65 5,225 6,035 6,475

65 – 74 7,550 9,030 9,490

75+ 7,690 9,180 9,640

MCA 75+ 6,365 6,625 6,965

Up 7.3%

Income tax rates 09/10Income tax rates 09/10

Basic rate band

Starting rate band

Higher rate band

£2,440

£37,400

NSI DISI

20%

20%

10% 10%

10%

32.5%

20%

40%40%Up

7.5%

NIC ratesNIC rates

07/08 08/09 09/10

Class 1 PT £100pw £105pw £110pw

Class 1 UEL £670pw £770pw £844pw

Emp’ee rate 11%

1%

11%

1%

11%

1%

Emp’er rate 12.8% 12.8% 12.8%

PA + £37,400

2010/11 changes2010/11 changes

Phasing out of PA for high earners

• Taxable income (pre PA) > £100K

• Reduce PA by ½ (TI - £100K)

New top rate of income tax for TI > £150K

• 50% for most income

• 42.5% for dividends

60% marginal rate No problem for non doms

Marginal tax rates 2010/11Marginal tax rates 2010/11

 60%            

50%           

           

40%                      

                 

30%             

             

20%             

               

10%               

               

                                 

0% PA HRB     100k 100K+ 2 x PA

150k

2010/11 changes2010/11 changes

Taxable income > £100K

• Consider salary sacrifice

• Childcare vouchers

• Pension cont’ns

• Maximise dividends pre 4/10

• Bonus March 2010

• Salary to spouse?

• Use of losses

• Income into capital? – Approved share schemes?

60% / 50% marginal rate

2010/11 changes2010/11 changes

• Transfer income producing assets between spouses/civil partners

• Spouses/civil partners in partnership- consider change of profit sharing ratio

• If bonus would bring total income above £100k, consider streaming over two years

• Companies closing down – take dividends post liquidation for capital treatment

2011/12 changes2011/12 changes

National Insurance

• Class 1 PT in line with income tax PA

• Employee rates 11.5% / 1.5%

• Employer rate 13.3%

Company or sole trade?Company or sole trade?

Profit £100K

Sole trade

• Income tax £29,800

• NIC

• Class 4 £4,063

• Class 2 £130

£33,993

Company

• Corp tax £20,570

• NIC -

• Income tax £9,683

£30,253

Saving £3,740

Company or sole trade?Company or sole trade?

Profit £400K

Sole trade

• Income tax £177,400

• NIC

• Class 4 £8,563

• Class 2 £130

£186,093

Company

• Corp tax £93,583

• NIC -

• Income tax £88,166

£181,749

Saving £4,344

£6,500 salary

Company or sole trade?Company or sole trade?

Profit £1m

Sole trade

• Income tax £477,400

• NIC

• Class 4 £17,563

• Class 2 £130

£495,093

Company

• Corp tax £270,583

• NIC --

• Income tax £240,916

£511,499

Cost £16,406

£6,500 salary

Tax efficient benefits

– From 6 April 2006:

• Battery electric cars – 9% of list price

• Bi-fuel gas and petrol cars – subtract 2%

• Hybrid electric and petrol cars – subtract 3%

– From 2008/09

• 10% charge for low emission cars– (emissions up to 120g/Km for 08/09 & 09/10)

• Scales start at 135g/km

• 2% discount for cars running on E85 fuel

– From 2010/11

• Scales start at 130g/km

Company cars – green issuesCompany cars – green issues

– From 6 April 2011:

• Alternative fuel reductions disappear

• Electric cars 9%

• £80K list price cap goes

• Scales start at 125g/km

Company cars – green issuesCompany cars – green issues

ChildcareChildcare

• Workplace nursery– exempt

• Child care vouchers– £55 per week

• per employee

– payment made directly to provider– not at home by relative

• Salary sacrifice?

But for how long?

Other exempt benefitsOther exempt benefits

• Pension contributions (but watch for charges – see below)

• Car park at work

• Medical check-ups

• Canteen meals +

• Mobile phone

• £8,000 removals

Pensions

Restriction on reliefRestriction on relief

• From 2011/12 relief tapered from 40% to 20%• if relevant income greater than £150,000

• 20% for income £180,000 and greater

• Relevant income = income less normal deductions• trading losses, pension contributions (max

£20,000), and gross gift aid

• add back salary sacrifice made on/after 22 April 2009

Beware GAAR

Special Annual Allowance ChargeSpecial Annual Allowance Charge

2009/10 and 2010/11 if relevant income > £150,000

– in current or either of previous 2 tax years

09/10 & 10/11 contributions made in excess of special annual allowance (SAA):

• 20% charge applies on excess amount

• SAA is ordinarily £20,000

• But may be increased to up to £30,000

From 22.4.09

Special annual allowance chargeSpecial annual allowance charge

• Well established frequent payments are “protected pension input amounts” (PPIAs)– Made quarterly or more frequently

• But, if payments increase, additional amounts are not protected

• Different rules for different types of scheme• Even though they are protected, PPIAs use

up the SAA

Special annual allowance chargeSpecial annual allowance charge

• SAA may be > £20,000 if infrequent payments in 06/07, 07/08 or 08/09

• SAA increased to mean amount of infrequent payments over those 3 years

• Up to a maximum of £30,000

Example 1Example 1

A

£

B

£

C

£

D

£

Relevant Income 09/10

110,000 154,000 145,000 165,000

Relevant Income 08/09

120,000 120,000 145,000 170,000

Relevant income 07/08

155,000 120,000 145,000 170,000

Contributions paid 09/10

24,000 24,000 32,000 18,000

Who could be hit with the SAAC charge?

Example 1Example 1

A

£

B

£

C

£

D

£

Relevant Income 09/10

110,000 154,000 145,000 165,000

Relevant Income 08/09

120,000 120,000 145,000 170,000

Relevant income 07/08

155,000 120,000 145,000 170,000

Contributions paid 09/10

24,000 24,000 32,000 18,000

Who could be hit with the SAAC charge?

Example 2Example 2

E

£

F

£

G

£

Relevant Income 09/10

160,000 160,000 160,000

Past regular monthly conts

1,000pm 2,000pm 3,000pm

Contributions paid 09/10

18,000 26,000 33,000

Who could be hit with the SAAC charge?

How big is the charge?

Example 2Example 2

E

£

F

£

G

£

Relevant Income 09/10

160,000 160,000 160,000

Past regular monthly conts

1,000pm 2,000pm 3,000pm

Contributions paid 09/10

18,000 26,000 33,000

Who could be hit with the SAAC charge?

How big is the charge? 20% x £2K = £400

Example 3Example 3H

£

I

£

J

£

Relevant Income 09/10

160,000 160,000 160,000

Annual cont 08/09 24,000 24,000 38,000

Annual cont 07/08 9,000 18,000 42,000

Annual cont 06/07 15,000 36,000 40,000

Conts paid 09/10 21,000 25,000 34,000

Who could be hit with the SAAC charge?

How big is the charge?

Example 3Example 3H

£

I

£

J

£

Relevant Income 09/10

160,000 160,000 160,000

Annual cont 08/09 24,000 24,000 38,000

Annual cont 07/08 9,000 18,000 42,000

Annual cont 06/07 15,000 36,000 40,000

Conts paid 09/10 21,000 25,000 34,000

£200 £800

Furnished holiday lettingsFurnished holiday lettings

What’s changed?What’s changed?

HMRC now accepts that property situated in EEA Member State can be treated as FHL

Austria Belgium Bulgaria Cyprus Czech Rep

Denmark Estonia Finland France Germany

Greece Hungary Iceland Ireland Italy

Liechtenstein Latvia Lithuania Luxembourg Malta

Holland Norway Poland Portugal Romania

Slovakia Slovenia Spain Sweden UK

FHL – The endFHL – The end

•2010/11 and later – FHL treatment withdrawn for all property – UK and EEA