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2010 & 2011 have been full of changes and announcements in the world of tax and financial planning, most notably with the Budget in March and the Emergency Budget in June 2010. It’s often difficult to know which of these changes will affect you as a small business owner – but help is at hand! Our Financial Planning Team gives you an update on the issues you need to be aware of – and provides you with some free tips too!
This has increased to £7,475 in April 2011, a rise of £1,000 from its current level. This means you can generate a higher level of income before being subject to income tax. Those with earnings of over £100,000 per annum will have their personal allowance reduced or removed entirely so this change will have little or no impact on higher income individuals.
Wow’s tip: Consider dividing income between spouses or civil partners to fully utilise the increased personal allowance and try to manage income levels (to below £100,000) where possible to retain the full benefit of your personal allowance. Using pension contributions is a really effective way of doing this.
As anticipated, CGT has risen meaning that higher rate taxpayers will pay 28% tax on all capital gains in excess of the annual exemption (£10,600). Gains that fall within the basic rate income tax band remain taxed at 18%. This means that many people will need to review their investments to make sure they are still as tax-efficient as they can be. For all people, ISAs become even more valuable as they are free of income and capital gains tax.
Wow’s tip:The first job is to maximise your ISA allowance (£10,680 per person). After that, higher rate taxpayers may now want to consider onshore and offshore investment bonds as effective tax-efficient alternatives to unit trusts or stocks and shares. Speak to us if you want to review the current structure of your investment portfolio.
Now for some good news about your pension! You no longer have to buy an annuity with your personal pension fund at age 75 – which makes investing in pensions even more attractive. Not only do you get generous tax benefits when you make contributions, you can now decide what to do with your pension when you retire. If you are not using pensions as an effective tax-planning tool, please speak to us as they remain one of the best ways to minimise personal and corporate tax liabilities.
Wow’s tip: Ensure you have a flexible pension plan that allows you to take advantage of the new pension rules. Many older style pension plans have high charges, limited investment choice and lack of flexibility – ensure your pension is not stuck in one of these! Also, the new annual allowance for what you can contribute into a pension is £50,000 per annum. Speak to us if you want to contribute more than this as there are ways to do this without incurring a tax charge.
There have been many innovations in pension and investment funds over the last couple of years which has meant the cost of investing for many people has been significantly reduced. Paying high charges for pension or investment products, or high annual management fees to expensive fund managers are rarely worth it – and often leads to a reduction in the overall return your investments generate.
Wow’s tip: Question what investments you hold at the moment and find out how much you are paying for them. If you are paying too much then you should look at alternatives that could bring down the cost of investing without compromising on quality. If you don’t know where to start, please get in touch and we will be happy to help.
The current inheritance tax nil rate band will remain at £325,000 per individual until at least 5 April 2015. This will mean more and more people will be affected by inheritance tax as property prices and asset values increase over this time. This will make proper planning essential if you want to avoid or minimise this tax.
Wow’s tip: Plan early. Inheritance tax has been described as “a voluntary tax that is paid only by those who distrust their heirs more than they dislike the taxman”. It can be minimised or even eliminated if you act early.
There are plenty of changes ahead that will affect most, if not all, small business owners and we are here to help with these challenges. We are more than happy for you to give us a ring and chat through any financial planning issues that are keeping you awake! From tax planning to your pension funds, from how to set-up the best ISA to how best to protect your business – just call 0845 201 1580 or send an e-mail to firstname.lastname@example.org