The start of a new tax year is a good opportunity in the current climate for people to put their tax affairs in order and ensure all reliefs are being claimed. In the current environment where the Government is so committed to cutting back even on lawful tax avoidance, and has just strengthened the powers of HMRC to engage in searches of the homes of individual tax payers, first of all check all tax due is paid. Secondly, claim all allowances and expenses that are appropriate.
With the prospect of 45% tax rates for some and a budget on 22 April, it is wise to take some advice on how to minimise your tax bills. For 2009/10 the single person allowance for those under 65 is £6,475. The 40% tax band starts on income over £37,400 after allowances (£43,875 gross pay for those simply with the single personal allowance). The basic rate is 20% and there is starting rate of 10% on savings income only. The rates available for dividends are the 10 per cent ordinary rate and the 32.5% dividend upper rate.
Inheritance tax remains at 40% and that now applies since 6 April to estates over £325,000. A deceased spouse’s unused band can also be utilised making a maximum of £650,000. It is wise to consider tax planning measures to reduce the risk of IHT applying, and always sensible to make a will for lots of other legal reasons too. The rules on dying intestate have recently changed as well and it is simpler for family if a will is made rather than wrestling with intestacy law.
For those involved in businesses now is a good time to consider tax planning there too. There is an annual lifetime £1m allowance for capital gains purposes – gains up to that level are taxed at 10% not the standard 18%. So if a business were owned by 6 family members – husband wife and 4 adult children they would have £6m lifetime allowances. If instead it were purely owned by one then more of the gains where it was sold for over £1m, would be taxed with the additional 8%. However legal advice should be sought as it is not always wise to transfer assets or set up a business under which other family members own shares in the family company as relationships change.
The decision in the Myerson divorce case in the Court of Appeal on 1st April (that a “clean break” divorce order was final and could not be undone even if less than a year later the husband’s shares were worth very little and the wife’s percentage of the assets ended up being over 100% of the estate as it was then) gives at least some certainty. It also illustrates the importance of insisting the lower earning spouse, where there is a company, takes shares in the business, perhaps 50% and that the higher earner takes 50% or whatever percentages are applied, of houses and other more tangible assets so that this position does not recur. This will only apply in the bigger money cases where there are substantial assets and shareholdings.