Reflections on the 2009 Budget

Manaf Ahmad

It would be useful to review number of tax planning ideas to reduce/mitigate the effect of the introduction of the 50% IT bracket. The ideas range from salary sacrifice through to converting income into capital, and have varying degrees of effect on the amount of tax payable by individuals. Thought needs to be given now in order to get arrangements in place before the tapering of the personal allowance in 2010/11.

In a property and construction context, the introduction of the 50% tax bracket has also enhanced the attractiveness of transferring investment properties from companies into partnerships to filter rent through the corporate partner at 28% roll-up and capital to the individual at 18%.

These ideas are likely to generate significant interest from higher paid senior management and directors through to owner managed businesses and could help us through the door with a number of cold targets. Here are some examples - Accelerating Income to take advantage of lower income tax rates Relevant individuals

• Taxable income of 150k Franks or more
• Individuals whose personal allowance will be tapered from 2010/11 (100k-113k Franks)
• Tax equialised employees

Opportunity

• Accelerating salary and bonus payments
• Taking advantage of the 2009/10 income tax rates and personal allowance
• Subject to clawback arrangements as necessary

Observations

• Taxable income subject to higher tax rate of 40% rather than 50%
• May mean that some or all of personal allowance for 2010/11 is preserved

There is can be lots of other example like that, converting income to capital and making use of existing reliefs, converting income to capital, restructuring pensions to avoid restriction on tax relief, salary sacrifice, deferring income / benefits and the tax charge. Most of Accounting practice following these rules to save their clients tax of 50%.