Gordon Faragher 19 November 2009

1. GFP Conference Personal tax update Gordon Faragher 19 November 2009

2. Overview The economic background Future tax rates Pensions Furnished holiday lets Planning thoughts

3. Public finances - receipts 34% 22%

4. £bn £bn HMRC 442 (last slide) Car Tax 6 Business rates 23 Council Tax 24 Other 15 68 510 Public finances - receipts

5. Where does it all go?

6. £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) Do the sums add up? Debt interest

7. Where does it all go?

8. Future tax rates

9. Tax allowances Up 7.3%

10. Income tax rates 09/10 Higher rate band 40% 40% 32.5% Up 7.5% £37,400 Basic rate band 20% 20% 10% £2,440 10% 10% Starting rate band 20% NSI SI DI

11. NIC rates PA + £37,400

12. 2010/11 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 No problem for non doms 60% marginal rate

13. Marginal tax rates 2010/11

14. 2010/11 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

15. 2010/11 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

16. 2011/12 changes • National Insurance • Class 1 PT in line with income tax PA • Employee rates 11.5% / 1.5% • Employer rate 13.3%

17. 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

18. Company or sole trade? £6,500 salary 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

19. Company or sole trade? £6,500 salary 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

20. Tax efficient benefits

21. 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 issues

22. From 6 April 2011: Alternative fuel reductions disappear Electric cars 9% £80K list price cap goes Scales start at 125g/km Company cars – green issues

23. Childcare 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?

24. Other exempt benefits Pension contributions (but watch for charges – see below) Car park at work Medical check-ups Canteen meals + Mobile phone £8,000 removals

25. Pensions

26. Restriction 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

27. From 22.4.09 Special 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

28. Special 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

29. Special 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

30. Example 1 Who could be hit with the SAAC charge?

31. Example 1 Who could be hit with the SAAC charge?

32. Example 2 Who could be hit with the SAAC charge? How big is the charge?

33. Example 2 Who could be hit with the SAAC charge? How big is the charge? 20% x £2K = £400

34. Example 3 Who could be hit with the SAAC charge? How big is the charge?

35. Example 3 £800 £200

36. Furnished holiday lettings

37. What’s changed? HMRC now accepts that property situated in EEA Member State can be treated as FHL

38. FHL – The end 2010/11 and later – FHL treatment withdrawn for all property – UK and EEA