Title: Tax planning priorities for high earners and business owners
1Tax planning priorities for high earners and
business owners
- Chair George AndrewHead of Market Relations,
Scottish Widows - Tony WickendenJoint Managing Director, Technical
Connection
2Informed StrategiesFor the owners of SMEs in a
challenging economic and fiscal environment
- Tony WickendenJoint Managing Director, Technical
Connection
3- This presentation (slides and words) is given
strictly for general consideration only. No
action must be taken or refrained from based on
its content alone. Each case depends on its facts
and accordingly neither Technical Connection Ltd
nor any of its officers or employees can accept
any responsibility for any loss suffered as a
result of any such action or inaction.
4Some Facts of Current Business Life
- Reduced turnover
- Reduced profit
- Reduced cash flow
- Debt concern
- Risk
- Lack of access to capital
- But not for everyone!
5Key Tax Changes For the SME owner managers
Higher rate tax relief on pension contributions
for 150,000 earners
50 tax
150,000
113,000 60 100,000
NIC
And CGT remains at 18
6Raising the Profile of Tax Planning
60 (effective) TAX
H R T R
50 TAX
ANGER ANXIETY ACTION
7Proactivity
CLIENTS
Existing
New
Stated
NEEDS
Unstated
8Show me the Money
- Keep more
- Save more
- Realise more
9More Money for the Company
- From
- HMRC
- Your Pension Fund
10Accessing Cash from HMRC
- The 3 year loss carry-back provisions
- Applies to ALL businesses
- Companies ACPs ending 24 November 2008 - 23
November 2010 - Non-corporate business tax years 2008/09 and
2009/10 - Claim against later years first
- 1 year unlimited losses
- Years 2 and 3 50,000 maximum each year
11Getting your own (Tax) back
3
2
1
2006
2007
2008
2009
Loss
Trading Loss
50k max
50k max
unlimited
MAIN 30 MR 32.75 SCR 19
MAIN 30 MR 32.5 SCR 20
MAIN 28 MR 29.75 SCR 21
12Accessing Cash from the Pension Fund
- By loan back
- By property sale
- By share sale
13Accessing Cash by Loanback
PENSION FUND
- Occupational
- Small (lt12 members)
Sponsoring employer
Member
Loan conditions
Unauthorised payment
- Secured
- Interest rate
- Term
- Amount
- Repayment
14Purchasing Company-occupied Property - possibly
at lower valuation
PENSION FUND
Member/company
- Tax (on gains)
- Corp tax
- CGT - members
15Keeping more of the Money you take from the
Business
- Dividend/salary
- Income splitting
- Salary sacrifice
- EBT/FBT
16Dividend or Salary?
COMPANY 21 28 29.75 SHAREHOLDER /
DIRECTOR 20 40 50 (32.5) (42.5)
17Dividend or Salary?
COMPANY 21 28 29.75 SHAREHOLDER /
DIRECTOR 20 40 50 (32.5) (42.5)
DIV
18but dont forget
- Employee conts relief earnings related
- Employer conts relief not related to members
earnings - Impact on share valuation?
- Abnormal pay practice?
- Social security benefits?
19and
06.04.10
32.5
42.5
2009/10
2010/11
20and
06.04.10
32.5
42.5
2009/10
2010/11
Pay now.. and lend if necessary
21Income Splitting
BUSINESS
SALARY
Wholly and exclusively
PROFITS
Partner
Settlement? Arctic? New legislation?
DIVIDENDS
Shareholders
22Dividend Waivers
Dividends should be declared pro rata to
shareholding Buck -v- HMRC 2008
Mr Buck
Mrs Buck
9,999 shares
1 share
45,000 (AVE) PROFIT DIV
(Waived)
35,000
SETTLEMENT!
(A right to income)
23Salary/Bonus Sacrifice
- Bonus/salary sacrifice more tax/NIC attractive
than personal PP contribution - Personal contribution to PP NI inefficient
- HRT taxpayer salary sacrifice
- no delay in getting HRT
- uplift of nearly 15 when compared to personal
contribution
24Care!
- NEW SALARY SACRIFICE INEFFECTIVE TO REDUCE
RELEVANT INCOME FOR 150,000 THRESHOLD FOR THE
SPECIAL ANNUAL ALLOWANCE CHARGE
25Employee Benefit Trusts
(Offshore) EBT
Employer
Non deductible
Interest free loan
Debt (IHT)
Tax on benefit of interest unpaid
EMPLOYEE
HMRC
26BEWARE
- Schemes purporting to offer deductibility without
assessability - AND
- Latest HMRC activity
27Revenue and Customs Brief 49/09
- Potential IHT on creation of EBT by close company
participators
28Consequence
1M EBT
(CLT)
COMPANY
EBT
Transfer of value
1M
Shareholders
20 200,000
29IHT Exemptions for EBTS
I H TA 1984
- S13 N/A if 5 shareholder can benefit unless
payment subject to income tax - S12 N/A if company entitled to corporate tax
deduction - S10 N/A if no gratuitous benefit (applied
strictly)
30So what?
- Brief 49/09 ? aimed at deterring EBT use
- Think carefully before acting
- Interest penalties?
31and EFRBS?
- Deductibility/assessability as for EBTs
- HMRC SPOTLIGHT (6)
- No deductibility without assessability
32Show me the Money
33Show me the Money
34And now for something completely different?
NON PENSIONS RETIREMENT PLANNING
35The answers Pension...now whats the question?
Pensions Fund
PCLS (TAX FREE CASH)
20 Relief
TAXABLE INCOME20 / 40 / 50
Death
IHT / IHT FREEDOM
36Or
Alternatives
Collective
TAX RELIEF
UK Bond
Offshore Bond RUF
QSP
ISA
TAX FREE
INCOME TAX (NO CREDIT
37Pensions Alternatives
INPUT
ACCUMULATION
INCOME (TAX) GAINS
TAX RELIEF
?
Pensions (1) 0 0
Coll X 0-50 (42.5) 0 UK
Bond X 0-20 20 (2) O/S Bond X
0 0 QSP X 0-20 20
(2)
- SAC for 150,000 earners reduces effective
rate of relief - Indexation relief special rules for funds
38Pensions Alternatives
INPUT
ACCUMULATION
BENEFIT
INCOME (TAX) GAINS
TAX RELIEF
?
Pensions (1) 0 0 75 _at_
(0-50) 25 0 Coll X 0-50 (42.5)
0 0-18 (3) UK Bond X 0-20 20
(2) 0-30 (3) O/S Bond X 0
0 0-50 (3) QSP X 0-20 20 (2) 0
(3)
- SAC for 150,000 earners reduces effective
rate of relief - Indexation relief special rules for funds
- All in cash/accessible/IHT planning
39Considerations
- Even SAC pension conts get a headstart
- Neutrality can be secured by other wrappers in
accumulation - Net pension receipt (Assuming no lifetime
allowance issues) - For a 50 taxpayer
- Net benefit 62.5 of gross pension fund (25
75 x 50) - For a 40 taxpayer
- Net benefit 70 of gross pension fund (25
75 x 60)
40Visually on benefit for a 50 taxpayer
Pension
COLL
O/S Bond
UK Bond
QSP
18 Tax
30
50 Tax
50
Pension
100
50
82
70
50
25
TFC
41and overall
- Consider all stages
- The greater the growth rate the better the
pension looks (generally!) - Always do the maths!
- But at least have the conversation
42and dont forget
- IHT Until vesting PF is IHT free
- Bankruptcy protection Pension fund effective
- Flexibility PF money inaccessible
- Tax on benefits Possible future CGT increase?
- Tax free cash?
- Further limitation of PF tax relief
43Realising Value
- Reinvest to build business and realise _at_ 10/18
44Entrepreneurs Relief
- 10 (effective rate) for first 1m of lifetime
gains - 18 after
What?
How?
450,000
Sarah sells trading business makes gain
of Reduction of 4/9 (entrepreneurs
relief) Taxable CGT _at_ 18
200,000
250,000
45,000
(ER10)
45Entrepreneurs Relief
- Sole traders
- Partners
- Shareholders with material interest
Who?
WHO CARRY ON THE TRADE
Detail
- Trading businesses (not property letting)
- No minimum age
- 1 year minimum ownership
- Shareholder must be an officer or employee and
own minimum 5 OSC of company
46My Business is my Pension
VALUE DRIVERS
BARRIERS TO REALISING VALUE
- Strong, growing profits
- Predictable revenues
- Non-reliance on owners
- Scalable products / services
- Little or no competition
- Strong brand
- Innovation
- Strong client base
- High value assets
- Low debt
- Good cash flow
- Timing
- Technology
- Economic cycle
- Availability of capital
- Buyers
- Health
- Tax
- Law / Regulation
How many are present?
How many are relevant?
47Pensions Alternatives
INPUT
TAX RELIEF
?
Pensions (1) Coll X
UK Bond X O/S Bond X
QSP X
- SAC for 150,000 earners reduces effective
rate of relief
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