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 UpdateSpeakers:John EndacottSteve York2www.winterrule.co.uk

3. Developments at Winter Rule3www.winterrule.co.uk

4. Income tax and national insurance thresholdsIncome tax threshold - £7,475 (increase of £1,000)

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%4www.winterrule.co.uk

10. www.winterrule.co.ukTaxation update5

11. Incorporation?Main corporation tax rate reduced by 2% to 26%

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 splitting6www.winterrule.co.uk

15. www.winterrule.co.uk7Pension Rules – 2011/12 OnwardsAnnual limit of £50,000 – previously £255,000

16. Carry forward of unused allowances

17. 50% relief

18. Changes to compulsory annuitisation

19. No annuity

20. 55% tax charge on death

21. QROPS/QNUPSwww.winterrule.co.uk8Pension Contribution – 50% ReliefGross contribution of £10,000 £Contribution (paid net) 8,000Income tax relief through self-assessment (3,000) --------- 5,000Tax free cash (2,500) ---------Net investment in fund £2,500 =====£7,500 @ 45% = £3,375=====

22. www.winterrule.co.ukIn-Specie Pension Contribution9Nicholas 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 partner10Objectives of any structure:Maximise ease of capital funding for the businessMinimise tax cost of profits extractedOptionsLLP / partnershipLimited CompaniesMixturewww.winterrule.co.uk

24. www.winterrule.co.ukCorporate partnerP3P1P2P3P2P1COMPANYLAW FIRM LLP11

25. www.winterrule.co.ukCorporate partner12Why?Provide capital to trading LLP post 20% / 26% tax rather than post 52% income tax.

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.

28. Family involvement post October 2011www.winterrule.co.ukOther Points of Interest13Tax free mileage allowance (up to 10,000 miles) increased to 45p per mile

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

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

31. VAT registration threshold - £73,000Budget 2011 Tax UpdateSteve YorkTAX MANAGERTAX PLANNING USING GIFT AID14

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

33. Budget 2011 Changes16www.winterrule.co.uk

34. Budget 2011 Changes17www.winterrule.co.uk

35. Tax ReliefBasic rate tax relief at source

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=£10018www.winterrule.co.uk

37. Tax Relief – Income over £150,00019Warren’s annual income is £250,000 and he pays tax at 50% on his income over £150,000.

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

42. Tax Relief -Income over £150,00020Warren was minded to donate £8,000 but after tax reliefs, he only ‘spends’ £5,000.He could donate £12,800 invested – soRNLI reclaim tax of £3,200 (gross donation £16,000)

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

45. Tax Relief - personal allowance claw back Kady earns £105,000 in the 2011/12 tax year, so her personal tax allowance is reduced by £2,500.

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.uk21

48. Tax Relief - personal allowance claw back(cont)£4,000 (RNLI can reclaim £1,000 tax relief)

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.uk22

52. Interaction with dividend incomeRonnie has income such that £10,000 of dividend income from share holdings is taxed at the higher rate of 32½%

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.uk23

55. Ronnie continued24His tax liability will be £2,250 less.

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

57. Tax Relief Gift aid relief can be useful for tax planning

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.uk25

62. Carry Back 26Gift aid relief is now just about the only tax relief that can be carried back to the previous tax year.

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 Raymondwww.winterrule.co.uk

65. Word of Warning To be eligible for gift aid, the donor must pay at least as must in tax as is being reclaimed by the donee charity

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.uk27

68. Other types of donationGift of shares

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.uk28

75. Warren – 50% taxpayerWarren, 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% = £5,000www.winterrule.co.uk29

76. Kady – 60% marginal tax rateKady, 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.uk30

77. Budget 2011 Tax UpdateJohn EndacottTAX PARTNERCHARITABLE GIVING AND THE DEATH ESTATE31

78. Death Estate – Things to Watch forSpecific legacies

79. Gifts out of residue

80. Interaction with:

81. Spouse exemption

82. Business / agricultural property relief

83. Watch domicilewww.winterrule.co.uk

84. The Charitable ExemptionExemptions for gifts to:

85. Charities

86. Political parties

87. National purposes

88. Maintenance funds for historic buildings33www.winterrule.co.uk

89. Budget 2011 AnnouncementCharitable gifts > 10% of net estate

90. 36% tax rate

91. Deaths after 6 April 2012

92. Consultation document – summer 2011

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

94. Nil Rate BandFrozen until April 2015

95. Then increasing at CPI

96. Office for Tax Simplification (OTS) Report35www.winterrule.co.uk

97. Heritage Property Commonly paintings, sculptures, ceramics

98. Conditional exemption for Estate Duty

99. Public access

100. Gifts in lieu

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

102. Summary High tax rates here for the foreseeable future

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 future37www.winterrule.co.uk

106. Budget 2011 Tax Update38LOWIN HOUSETREGOLLS ROADTRUROCORNWALLTR1 2NATELEPHONE: 01872 276477EMAIL: jendacott@winterrule.co.uksyork@winterrule.co.ukwww.winterrule.co.uk