The document summarizes implications of the UK Budget 2011 tax update for solicitors and their clients. It discusses increases to income tax thresholds and reductions to corporation tax rates. It also covers changes to pension contribution limits and rules around compulsory annuitization. Additional sections provide details on tax planning opportunities using gift aid donations and the interaction between charitable giving and inheritance tax on estates.

1. BUDGET 2011 TAX UPDATEIMPLICATIONS FOR SOLICITORS AND THEIR CLIENTS4 May 2011

2. Budget 2011 Tax Update Speakers: John Endacott Steve York 2 www.winterrule.co.uk

3. Developments at Winter Rule 3 www.winterrule.co.uk

5. National insurance threshold - £7,225

6. Higher rate threshold - £42,475 (reduction of £1,400)

7. National insurance increased by 1%

8. £7,225 £42,475 9%

9. Above £42,475 2%4 www.winterrule.co.uk

10. www.winterrule.co.uk Taxation update 5

12. Small companies corporation tax rate reduced by 1% to 20%

13. Future reductions in main rate

14. Ongoing review of small business taxation and income splitting6 www.winterrule.co.uk

16. Carry forward of unused allowances

17. 50% relief

18. Changes to compulsory annuitisation

19. No annuity

20. 55% tax charge on death

22. www.winterrule.co.uk In-Specie Pension Contribution 9 Nicholas has VCTs worth £8,000. He contributes these to a SIPP as a pension contribution. Nicholas had 30% income tax relief on the VCTs and will now benefit from 50%relief on the contribution. Can work for other assets as well.

23. Corporate partner 10 Objectives of any structure: Maximise ease of capital funding for the business Minimise tax cost of profits extracted Options LLP / partnership Limited Companies Mixture www.winterrule.co.uk

24. www.winterrule.co.uk Corporate partner P3 P1 P2 P3 P2 P1 COMPANY LAW FIRM LLP 11

26. Refinance existing partner capital in the business to provide more cash (for investment or extraction)

27. Potentially create longer term conversion of income to capital for tax purposes.

29. SDLT rate on residential properties over £1m – 5%

30. Review of taxation of “very high value property”

32. Lifetime Charitable Giving Gift Aid “If you can’t feed a hundred people, then feed just one” – Mother Teresa 15

33. Budget 2011 Changes 16 www.winterrule.co.uk

34. Budget 2011 Changes 17 www.winterrule.co.uk

36. Billy gives the RNLI £80. The RNLI is able to reclaim a further £20 from HM Revenue & Customs (HMRC). The RNLI ends up with £80+£20=£10018 www.winterrule.co.uk

38. He donates £8,000 to the RNLI, so the RNLI reclaim….

39. £2,000 – to make a gross donation of £10,000

40. Warren’s tax liability for the year then reduces by £10,000 x 50% = £5,000, minus the £2,000 above = £3,000

41. So, the RNLI receive £10,000 and Warren has only ‘spent’ £5,000.www.winterrule.co.uk

43. Warren reclaims tax of £16,000 x 50% = £8,000 - £3,200 = £4,800

44. Cost of donation to Warren £12,800 - £4,800 = £8,000www.winterrule.co.uk

46. She is a 40% tax payer, but the loss of allowances creates a 60% marginal rate

47. Kady decides to donate £5,000 gross to the RNLI and so writes a cheque out for…..www.winterrule.co.uk 21

49. Kady’s taxable income reduces to £100,000 as a result and her personal allowances are restored. So, £2,500 more tax free income.

50. Her tax liability reduces as a result by £5,000 x 40% PLUS £2,500 x 40% (reinstated allowances) = £3,000 minus the £1,000 above equals £2,000

51. £5,000 to RNLI costs Kady just £2,000!www.winterrule.co.uk 22

53. He has a higher rate tax liability on dividend income therefore of £2,250 (after deduction of the 10% dividend tax credit

54. If he pays £8,000 to the RNLI (£10,000 gross)...www.winterrule.co.uk 23

56. So, he would have gifted £10,000 to the RNLI for a cost to him of £8,000 - £2,250 = £5,750www.winterrule.co.uk

58. Extra tax relief may be available

59. Careful timing of gifts can reduce tax liabilities – which tax year to donate in?

60. Consider who should be making donations – eg husband or wife (who would receive the most relief?

61. Charities could ‘sell’ the availability of higher tax relief and possibly increase donationswww.winterrule.co.uk 25

63. Must be claimed on the earlier year tax return

64. Donation must be before the tax return is filed and before the normal tax return deadline (31 January)“Next to being shot at and missed, nothing is quite as satisfying as an income tax refund” – FJ Raymond www.winterrule.co.uk

66. May get an unexpected tax bill for the extra if they do not.

67. If in doubt, best not to claim gift aidwww.winterrule.co.uk 27

69. Gift of land

70. Gifts of art etc (under consultation)

71. The value of the gift reduces taxable income

72. No ‘grossing up’ for basic rate tax relief

73. No carry back to previous year

74. No capital gains tax payable on giftwww.winterrule.co.uk 28

75. Warren – 50% taxpayer Warren, instead of cash, donates land to the RNLI worth £10,000, including costs of donation. His tax liability for the year if the gift reduces by £10,000 x 50% = £5,000 www.winterrule.co.uk 29

76. Kady – 60% marginal tax rate Kady, instead of cash, donates shares in Tesco plc to the RNLI worth £5,000, reducing her taxable income from £105,000 to £100,000. Her tax liability for the year will be £3,000 lower as a result. www.winterrule.co.uk 30

77. Budget 2011 Tax Update John Endacott TAX PARTNER CHARITABLE GIVING AND THE DEATH ESTATE 31

79. Gifts out of residue

80. Interaction with:

81. Spouse exemption

82. Business / agricultural property relief

83. Watch domicilewww.winterrule.co.uk

85. Charities

86. Political parties

87. National purposes

88. Maintenance funds for historic buildings33 www.winterrule.co.uk

90. 36% tax rate

91. Deaths after 6 April 2012

92. Consultation document – summer 2011

93. Finance Bill 201234 www.winterrule.co.uk

95. Then increasing at CPI

96. Office for Tax Simplification (OTS) Report35 www.winterrule.co.uk

98. Conditional exemption for Estate Duty

99. Public access

100. Gifts in lieu

101. New consultation on gifts of art work – summer 201136 www.winterrule.co.uk

103. Business structuring planning can save tax

104. Otherwise maximise pension contributions / gift aid payments

105. Charitable giving likely to remain tax favoured for the foreseeable future37 www.winterrule.co.uk

106. Budget 2011 Tax Update 38 LOWIN HOUSE TREGOLLS ROAD TRURO CORNWALL TR1 2NA TELEPHONE: 01872 276477 EMAIL: jendacott@winterrule.co.uk syork@winterrule.co.uk www.winterrule.co.uk