A senior Harrogate tax adviser has warned that fifty per cent tax planning should still be on the agenda for high earners despite calls last week by 20 leading economists for the top rate of tax to be scrapped.
Tom Roseff, senior tax manager at Saffery Champness, said he believed the revenue raised by the 50p tax rate would make it hard for the Chancellor to drop it in the short term and that those affected should be looking at ways to mitigate its impact.
“The Government’s own figures show the 50 per cent rate will raise an extra £12.6bn over five years,” said Mr Roseff.
“George Osborne may have brought this in as a temporary measure but he has also indicated that no decision on the future of the tax will be made until an HMRC review has been completed after January’s self-assessment deadline.
In a letter to the Financial Times last week, 20 top economists claimed the top rate of tax was damaging economic growth and “punishing” entrepreneurship.
However, Mr Roseff warned that those on the highest rate should continue to consider sensible strategies to mitigate the impact of the 50 per cent income tax rate.
“There are plenty of legitimate ways to take the sting out of the top rate of tax. For example, 50% taxpayers whose spouse or civil partner pays tax at a lower rate could consider transferring income-producing investments into his or her name. Whilst a higher-rate taxpayer would pay £500 tax a year on gross interest of £1,000 from a savings account a basic-rate taxpayers would face a bill of only £200”.
Small business may also want to revisit the tax advantages to becoming a limited company. “You would then pay corporation tax on any profits, rather than income tax”, Roseff explains: “Corporation tax rates are currently between 20 per cent and 26 per cent, so you could make significant savings on profits retained within the business.”
Even more planning opportunities are likely to exist for the owners of larger corporates. “We are currently advising a number of clients on tax efficient ways of accessing the cash locked up in their businesses. The available strategies typically range from simple planning, such as the use of pension contributions and the timing of transactions, to more complicated restructuring which can often allow significant amounts of capital to be extracted at lower CGT rates. Crucially, our experience allows us to tailor our advice to suit each client’s specific requirements”.