Budget hit high net worth families hard

Thursday 23 April 2009

Budget hit high net worth families hard

James Kidgell and David Mellor of Dixon Wilson, the City accountancy firm that specialises in advising high net worth individuals, comment:

The increases in taxes and restrictions on pension relief for those with income in excess of 150,000 brings the top rate of tax up to levels not seen since the 1980s.  The 50% rate is higher than in almost all of the major global economies.  For those with employment income or self employed earnings the effective marginal rate is even higher  51% for the next tax year when National Insurance is taken into account.

The new rates of income tax rates will also apply to trusts irrespective of their level of income.
 
For internationally mobile individuals these changes, when taken together with the 2008 changes for non UK domiciled individuals, further increase the incentive to avoid being tax resident in the UK.
 
The difference between CGT at 18% and higher rate income tax at 50% is now stark and entrepreneurs are going to look very closely at how they can ensure that when they extract money from their businesses it is done as a capital gain rather than as income.

What we may see is owners accelerating the pace at which they take money out of family companies. You shouldn't be too surprised if companies look to take on extra borrowings in order to pay one off special dividends before the 50% rate comes into force  Businesses will need to plan for this well in advance in view of the difficult climate for borrowing.

Individuals will need to take great care with their pension planning as, although the headline changes take effect from 2010/11, there are provisions which will make it very difficult for individuals to obtain relief for any significant contributions made in the current tax year.