Monday, 15 August 2011

Do what you can to avoid the 50p tax rate

In an article (Osborne seeks Revenue check on 50p tax rate) published today on IFA Online there is a strong hint from the Chancellor that the 50p tax rate will not make it past the next budget.

I never assumed this upper tax limit would be something a Conservative lead Government would be keen on keeping so it has been no surprise that this sort of pre-emptive suggestion of it's abolition is no doubt a subtle way of saying to the wealthier part of society, don't worry things will be back to normal soon.

I am certainly not one of the many masses who constantly bemoan the wealthy and the privilege that wealth brings. I spend most of my days talking to parents who are in the fortunate position of being able to consider sending their children to private school and a great deal of what we discuss is how we can save tax in order to help fund it... I have no doubt in my mind that this is the right thing to do...

Some people, (most of my clients would not mind me saying that they consider themselves far from "wealthy") make a choice to send their children to private school and therefore do not burden the state with the cost of another school place. That saves the Government thousands of pounds per year so why shouldn't those helpful parents try to reduce their tax bill to compensate for their extra costs. Until roughly 15 years ago you could get direct tax relief for sending your children to private school through the use of a children's educational Trust. I see no reason why this type of arrangement should not be in use today.

The Government has set up the Free Schools initiative which helps parents provide a better education for their children by setting up state funded schools run partly by the parents of the children who will be attendees. If the Government is prepared to fund this, by way of an annual payment for each pupil in attendance at the school then why not allow transparent tax relief for sending your children to a private school... Maybe once we are properly beyond these austere times this is something for a future budget, hint hint Mr Chancellor!!!

Getting back to the 50p tax rate, HMRC will provide results by the 2012 budget on exactly how much tax has actually been raised as a result of the 50p tax rate. It appears (I consider this another hint) that Mr Osborne believes that due to tax avoidance measures the amount of tax actually raised by the extra high rate of income tax will not be as sizeable as assumed and therefore it should be scrapped.

HERE IS THE MESSAGE: There are perfectly legitimate ways of avoiding tax, pensions, EIS and VCT investments for example, not to mention actual tax avoidance structures themselves. If you are earning income above the 50p tax rate, in fact if you are earning income of around £100k or above then you need to speak to someone about reducing the amount of tax you pay.

The more people subscribe to avoiding the top rate of income tax the better, MR OSBORNE IS LISTENING and in my opinion has said clearly although not outright, that if more people avoid the 50p tax his decision to scrap it (assuming that is what will happen of course) will be easier to justify.

If you want help with tax mitigation then speak to your financial adviser or you can get in touch with me if you like...

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