Tax Planning for HighNet Worth Individuals

24 April 2012

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• Recently joined Mazars as tax director in the Bristol office

• Responsible for tax compliance and advisory across Bristol and the South West region

• Wealth of experience in both personal and corporate taxation, advising businesses and high net worth

individuals in all aspects of capital and income taxes.

• Focused on tax planning for owner managed businesses, assisting both the shareholders and the

directors on tax planning across potentially conflicting responsibilities

Amy Goold, Tax director

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Agenda

• Profit extraction

• Contract for differences

• Capital gains tax planning

• Entrepreneurs relief planning

• Inheritance tax planning

• Income tax planning

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Setting the scene

Don’t let the tax tail wag the planning dog!!

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Basics

• Don’t waste personal allowances

• Equalise income

• Defer or accelerate income or gains

• Crystallise or quantify capital losses

• Extend basic rate band where possible

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Profit extraction

• Remuneration

• Benefits-in-kind

• Dividends

• Share equity arrangements

• Anything else?

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Profit extraction

 Salary

Dividend- large

company

Dividend- small

companyPension

Use of home

Basic rate tax payer 40.2% 24.0% 20.0% 0.0% 0.0%

Higher rate tax payer 49.0% 43.0% 40.0% 0.0% 0.0%

Additional rate tax payer (50%)

57.8% 51.4% 48.9% 0.0% 0.0%

• Effective tax rates including income and corporation tax

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Use of home as office

Trading Company

Description•Another form of directors remuneration to be considered•Director “leases” a proportion of his/her home to the company•Proportion calculated based on amount of work done at home and area of the home used•Proportion of household costs offset against lease income in personal tax return

Benefit•0% tax rate – rental payments = proportion of household expenditure•Lease payments deductible for CT purposes•No affect on PPR or business rates provided no room has exclusive business use•Applies to pretty much every company

Company

Lease

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Contract for differences

• What is CFD?

• A contract between two parties speculating on the movement of an asset price or series of data

• An agreement (contract) to exchange the difference in value of a particular asset or series (based on turnover/EBIT/net assets) between the time at which a contract is opened and the time at

which it is closed

• Employer enters into a contract with key employee(s)

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CGT planning

• PPR elections

• 2 or more houses

• Time limit – 2 years of purchase

• Negligible value claim

• Turns un-crystallised capital loss into income loss

• Criteria to be met

• Must be claimed

• Capped with new restricted income tax reliefs, lower of:

• £50,000; or

• 25% of income

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Entrepreneurs relief planning

• 10% or 28%?

• ER on shares:

• Not held for 12mths

• Does not own at least 5% (voting and nominal value)

• Used, or will use, full ER allowance of £10m

• Own <5% and still qualify - planning using new EMI option rules

• Planning for each scenario available – act now!

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Inheritance tax planning

• Be generous, don’t ignore inheritance tax reliefs and charitable donations

• Regular gifts to charity should be made under gift aid or left in wills

• Timing of gifts can be helpful in extending basic rate band

• Don’t forget annual exemptions and small gifts relief and ensure that both spouses use them;

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Inheritance tax planning

• Transfer shares into trusts and use dividends to pay children’s school or university fees

• Older children or grandchildren

• Absolute saving because fees will be paid anyway

• Habitual gift out of income into trust

• No IHT or CGT implications

• Beneficiaries should be older children or grandchildren

• Trust can use income for benefit of children

• Pilot trusts

• Avoid the 10 year anniversary and exit charge

• Transfer more than £325,000 into trust in <7 years

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Inheritance tax planning

• IHT “Double dip”

• Husband transfers £100,000 of BPR shares to children

• 100% IHT exempt

• CGT holdover

• Wife buys shares from children for £100,000

• No IHT implications – no gift

• CGT holdover

• Result: £100,000 of cash transferred to children IHT free

• IHT efficient investments

• Qualify for BPR

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• Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs)

• Government sponsored initiatives

• Encourage investment in small, unquoted trading companies

• Help close the “equity gap”, whereby small businesses find it difficult to raise large amounts of capital.

• Business Premises Renovation Allowance Scheme (BPRA)

• Government sponsored initiative

• Bring derelict/unused properties in disadvantaged areas back into use.

• Initial allowance of 100% for expenditure on converting or renovating unused business premises.

• The schemes offer investors a wide range of tax reliefs to help provide downside protection against what are often higher risk investments

Income tax planning

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Income tax planning

• EIS/VCT

• 30% tax reducer

• Hold investment for 3 years/5 years

• Investment liquidated at end of term – potential return on investment

• Gains = CGT free

• Losses = set against income

• CGT deferral

• VCT dividends = tax exempt

• Not affect by new income tax relief restrictions

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Income tax planning

Example, if a 50% tax payer invested £100,000 in a BPRA scheme:

Gross investment £100,000

Loan (55% of gross investment) £55,000

Qualifying expenditure (assumed to be 88%) £88,000

Tax relief at 50% £44,000

Effective net cost (deposit less tax relief) £1,000

•Due to the nature of BPRA and the risks involved, individual advice must be sought.

Clifton Down HouseBeaufort BuildingsClifton BS8 4AN

Tel : 0117 973 4481 Fax: 0117 974 5203

www.mazars.co.uk

Any questions?

amy.goold@mazars.co.uk

Mobile: 0779 403 1527