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

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

Public finances - receipts 34% 22%

Public finances - receipts £bn HMRC442 (last slide) Car Tax 6 Business rates 23 Council Tax 24 Other

Where does it all go?

Do the sums add up? £bn Deficit in FY 08/09 78 (5.5% GDP) Total deficit at (52% GDP) Expected deficit in 09/10175 (13% GDP) Expected deficit at (64% GDP)

Where does it all go?

Future tax rates

Tax allowances Age07/0808/0909/10 Under 655,2256,0356, – 747,5509,0309, ,6909,1809,640 MCA 75+6,3656,6256,965 Up 7.3%

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

NIC rates 07/0808/0909/10 Class 1 PT£100pw£105pw£110pw Class 1 UEL£670pw£770pw£844pw Emp’ee rate 11% 1% 11% 1% 11% 1% Emp’er rate12.8% PA + £37,400

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 60% marginal rate No problem for non doms

Marginal tax rates 2010/11 60% 50% 40% 30% 20% 10% 0% PAHRB 100k100K + 2 x PA 150k

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

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

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

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

Company or sole trade? 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 £6,500 salary

Company or sole trade? 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 £6,500 salary

Tax efficient benefits

–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

–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

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?

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

Pensions

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

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 From

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

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

Example 1 A£A£ B£B£ C£C£ D£D£ Relevant Income 09/10 110,000154,000145,000165,000 Relevant Income 08/09 120, ,000170,000 Relevant income 07/08 155,000120,000145,000170,000 Contributions paid 09/10 24,000 32,00018,000 Who could be hit with the SAAC charge?

Example 1 A£A£ B£B£ C£C£ D£D£ Relevant Income 09/10 110,000154,000145,000165,000 Relevant Income 08/09 120, ,000170,000 Relevant income 07/08 155,000120,000145,000170,000 Contributions paid 09/10 24,000 32,00018,000 Who could be hit with the SAAC charge?

Example 2 E£E£ F£F£ G£G£ Relevant Income 09/10 160,000 Past regular monthly conts 1,000pm2,000pm3,000pm Contributions paid 09/10 18,00026,00033,000 Who could be hit with the SAAC charge? How big is the charge?

Example 2 E£E£ F£F£ G£G£ Relevant Income 09/10 160,000 Past regular monthly conts 1,000pm2,000pm3,000pm Contributions paid 09/10 18,00026,00033,000 Who could be hit with the SAAC charge? How big is the charge? 20% x £2K = £400

Example 3 H£H£ I£I£ J£J£ Relevant Income 09/10 160,000 Annual cont 08/0924,000 38,000 Annual cont 07/089,00018,00042,000 Annual cont 06/0715,00036,00040,000 Conts paid 09/1021,00025,00034,000 Who could be hit with the SAAC charge? How big is the charge?

Example 3 H£H£ I£I£ J£J£ Relevant Income 09/10 160,000 Annual cont 08/0924,000 38,000 Annual cont 07/089,00018,00042,000 Annual cont 06/0715,00036,00040,000 Conts paid 09/1021,00025,00034,000 £200 £800

Furnished holiday lettings

What’s changed? HMRC now accepts that property situated in EEA Member State can be treated as FHL AustriaBelgiumBulgariaCyprusCzech Rep DenmarkEstoniaFinlandFranceGermany GreeceHungaryIcelandIrelandItaly Liechtenstein LatviaLithuaniaLuxembourgMalta HollandNorwayPolandPortugalRomania SlovakiaSloveniaSpainSwedenUK

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