New Rules

From April 2010, an additional rate of income tax of 50% will apply to income over £150,000 and the income tax personal allowance will be restricted for those with incomes over £100,000.

From April 2011, tax relief on pensions contributions will be restricted for those with incomes of £150,000 and over, and tapered down until it is 20%. Anti-forestalling provisions will be introduced with effect from 22 April 2009.

A new additional rate of income tax of 50% and 42.5% for dividend income will be introduced in 2010-11 for those with incomes above £150,000. The tax rate applicable to trusts will also rise to 50%.

Tax Burden on High Earners

The gradual withdrawal of the personal allowance for those with incomes of £100,000 or more, and the restriction of higher rate tax relief for pension contributions for those with incomes of more than £150,000 (from April 2011) will increase the tax burden on higher income earners giving a marginal rate of tax for some of 60%. The transitional provisions on pension relief have immediate effect particularly for those who usually pay significant annual contributions.

What you can do

To Maximise Income before 6 April 2010 (subject to current top rate of 40% and 32.5% for dividends)

Reallisation of bonus payments, gains on unapproved share schemes, dividend payments or remittances of income and anything not domiciled in UK, might be brough forward so that the income falls to be taxed before 6 April 2010.

Complete the purchase of the Company shares before the change of Tax Rate date

If a company is planning to purchase its own shares, the shareholders will be taxed on the proceeds as income rather than gains, then the value to shareholders would be increased by completing the purchase before 6 April 2010.

Maximise profits taxable by the self-employed before 6 April 2010

The self-employed can maximise profits taxable at 40% rather than 50% by changing the accounting date.

Take advantage of 18% capital gain tax

With the differential of 32% between income tax and capital gain tax rates, various investment vehicles for trading, property holding or wider investment activities should be considered.

Emigration or working outside UK for a period of time

Temporary or longer term of emigration or working outside UK can be a useful planning tool.

Use up one’s tax allowance

Use your individual savings accounts (ISA) allowance of £10,200 (or £7,200 under 50) as well as tax-free National Savings & Investment products.

Transfer income producing investments to your spouse

If he or she is earning less than £150,000.

Close the bank accounts

If your bank account pays interest in an annual lump sum which is due to be paid after April, it is worthy to close the accounts, collect the interests before 6 April 2010 to enjoy lower tax rate then simply open new the accounts.

Contribute to Charity after April

To donate via the Gift Aid scheme after April 6 will provide higher tax relief for high earners and resulting in more money for the charity.

Accerlerate your Income

Employers can consider paying some employees their salaries and bonuses early to avoid higher tax.

Put more in your pension 2010/11

Pensions are now more unattractive to high earners with relief restricted to 20% on some contributions. But next tax year earners over £150,000 can put in at least £20,000 and up to £30,000 with 50% tax relief before the tax relief is restricted in 2011.

Move your assets to offshore bond

Offshore bonds which are investment bonds operated by life insurance companies enable you to pay no tax until you encash the bond. One may choose to encash the bonds when the tax rate is lower or pay no tax if one choose to retire overseas.

Reduce Working Hours

If you have the flexibility, consider reducing the working hours to keep income below £100,000. If you are over 55, you might think of taking a tax free lump sum pension to supplement your income.

Non domiciled residents should consider to making taxable remittances prior to 5th April 2010 to reduce their tax exposure.

Delay any forthcoming expenses that will qualify for tax relief until after 6th April 2010 to maximise the relief.

Consider Incorporation and shelter undrawn profits by paying corporation tax at 21%.

Carrying forward Trading Losses to offset against profits after 6th April 2010

Other benefits: Tax Planning Opportunities, Pensions, Limited Liabilities

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