Are you ready for the new 50% tax rate?

Take cash now and save 10% tax!

From 6 April 2010 the rate of income tax for those earning more than £150,000 pa is increasing from 40% to 50% – a 25% increase! If this isn’t bad enough, for those earning between £100,000 and £113,000 the effective tax rate is actually 60% as personal allowances are withdrawn at these salary levels.  The effective tax rate on dividends above £150,000 is also increasing from 25% to 36.11%, representing a 44.4% hike in rates. So are there any ways to avoid this or even take advantage?

1. Bring forward remuneration / dividend payments You could consider paying next year’s salary / bonus / dividend before 6 April 2010. This crystallises tax at the current rates rather than the higher levels. If the business cannot afford the cash outlay the funds extracted can be lent back to the company. Interest could be charged to the company to supplement future income whilst avoiding employer’s National Insurance.  

2. Equalise remuneration If you have a family business there is scope to realign the reward structure between husband and wife to take one spouse out of the £150,000 bracket.  

3. Sole traders and partnerships You may want to consider deferring expenditure until after 6 April 2010 to obtain relief at 50% rather than 40%. Alternatively, consider incorporation to crystallise a capital gain on goodwill taxable at 10% or 18% – then take a reduced salary / dividend in future.

The above are just a few strategies to consider, and if you would like to discuss tax efficient cash extraction further, please contact Tax Partner Alex White on 0161 245 1000 or email awhite@clbcoopers.co.uk