Tax Planning Options
When exploring your tax planning options there are two key considerations to be made:
- Will the tax planning I am about to undertake enable me to keep more of my hard earned income or wealth? and
- Is it legal?
At Parker Chartered Accountants we work closely with two leading UK providers of tax solutions to deliver tax planning services that help our clients reduce their tax burden whilst being fully compliant with the current legal framework.
Our partner tax planning providers monitor the latest legislation, in particular the Finance Act, before releasing new tax planning regimes. Here’s the current tax planning options that we have available from July 2011:
Tax free dividends for shareholders, including shareholders in investment companies
This planning has been developed in conjunction with the UK’s leading provider and two eminent QC’s. It is relatively simple to understand and implement and provides tax free dividends for all shareholders, including those in investment companies. Like all the best planning the structure uses HMRC’s own well known anti avoidance legislation. The planning uses the legislation in the same way as described in a recent tax case in such a way as to create a tax saving.
The planning comes in two versions
- Tax Free dividends for shareholders (available immediately)
- Tax free dividend for shareholders (available mid September 2011)
As the planning does not fall within the new wide ranging disguised remuneration rules it is viewed at the lower end of the risk profile.
The main benefits are as follows:
- Suitable for both trading and investment companies registered in the UK
- Dividend tax free in hands of the recipient
- Can be used for distributing current year profits or more importantly retained reserves
- No national insurance and not and EBT so no loans or long term structure
- Net tax saving of between 67% and 75%
Entry level is £100,000 per extraction. However using the non corporation tax deduction route prior year reserves can be extracted. This will be particularly attractive to many companies with large retained reserves and especially investment companies for whom planning is traditionally more difficult.
Strategy to allow individuals to shelter unrealised capital gains on personally held assets
This planning is suitable for any individual that owns investments where the initial cost is significantly less than current value. That is assets with unrealised gains. It is suitable where future disposal is not envisaged for at least 12 months from implementation of the planning.
Main benefits are that it:
- Avoids Capital Gains Tax on sale of the asset
- Does not involve the creation of a loss thus avoiding a large tranche of difficult anti avoidance legislation
- Has robust tax council opinion behind it
- With fees of just 7% of gain to be sheltered there is a significant saving compared to the 28% otherwise typically payable.
Stamp duty mitigation
With the Finance Act 2011 many providers of stamp duty avoidance strategies fell out of the market. However the planning we have available was not affected by the Finance Act and two new variations of the planning are now available to accommodate even more client circumstances. The planning eliminates stamp duty payable on completion.
The planning works for residential property purchases over £600,000 and commercial property purchases over £1.5m
Income tax reduction for higher rate tax payers
Our long running contractor strategy has survived the Finance Act 2011. The planning works for business owners by allowing them to contract their services to the business through a third party employment agency. It also works for subcontractors who would otherwise contract through an umbrella company or one man service company.
Total extraction costs are under 20% which compares with 40% via dividends and over 50% via salary for the highest rate tax payers. Extraction takes place monthly and so is a substitute for salary.
This is considered a low risk strategy as the contractor is employed by the agency so the employment agency takes most of the risk and is considered suitable for company directors and contractors earning over £70,000 per annum.
What to Do Next
If you are interested in any of the above tax planning ideas please call Andy Parker on 0121 764 5161.