Preparing for a 50% top tax rate

The lowest rate of income tax, 10%, was removed for most individuals in 2008. Nowadays it applies only to a small slice of savings income and to those people on the lowest incomes. For most, the 2009/10 tax rates are 20% and 40%, the latter having been the top rate since 1988.

From April 2010 a new top rate of income tax is being proposed: 50% on income over £150,000 and 42.5% (up from 32.5%) where the top slice of income is dividends.

In addition, from April 2011 those earning more than £150,000 a year may lose higher rate tax relief on their pension contributions. New rules have been introduced to stop those who might hope to use the time before then to increase premiums or contributions to make the most of 40% relief this year and 50% relief in 2010/11.

These changes serve to emphasise the importance of proper financial planning. We can advise on strategies to minimise taxes and maximise the strength of your business and long-term financial health through:

• making the most of tax breaks for you and your business
• planning to extract profits from your business tax-efficiently
• making the most of tax-advantaged savings (including pensions)
• reducing the inheritance tax due on your estate.

Tax and financial planning are essential parts of managing your business and your personal finances.

Talk to us now for advice on making the most of the opportunities available to you and your business this year.

Note: this guide refers to ‘spouses’; in most cases this applies also to civil partners

Year-round planning

The end of the tax or business accounting year is a key time to focus on tax and financial planning, but you should also try and think about these issues throughout the rest of the year.

Many of the strategies outlined in this guide need not wait until the end of the year, though in some cases timing is critical.

While opinions vary as to the likely rate of the UK’s recovery from the recession, by preparing and updating a forecast of income and outgoings you can identify times when money may be short and plan for them. We can help you with this.