Personal Tax Matters

With the right help and advice, you can reduce the amount of tax you pay to a minimum. Review your planning with us now. Don't hesitate - Contact us imediatley on +44 (0)20 8444 2000 or e-mail us on langleys@langleygroupllp.co.uk

 Good tax planning is an ongoing process...
Focus on your family
Basic principles for 2002/03
Minimising capital gains tax
Is it time to review your Will and estate plan?
Minimising your PAYE liability
Building your wealth? Don't miss out on tax breaks

Do you think you pay too much tax?

While we all complain, from time to time, about the amount of tax we pay, when did you last consider that you might be paying more than you need to?

We find that many people pay more tax than they should due to simple misunderstandings. Many more can save tax by following simple tax reduction strategies, aimed at immediate or longer term tax savings.

In either case, time spent discussing your tax affairs with us is time well spent. We cannot, in this publication, address all the potential areas for tax saving - instead, we aim to show you that our services are dedicated to ensuring that our clients do not pay the Inland Revenue a penny more than is due.

We trust you will find our tax guide of interest. Minimising your tax exposure requires careful thought and consultation - and you will need to start planning now.

An ever changing tax system

In recent years, we have seen many changes to the tax system.

With a complicated and changing tax system, backed by a structure of antiavoidance legislation, penalties, surcharges, and interest, it would be unwise to try to take advantage of tax breaks without a clear understanding of the current rules and of forthcoming changes. Some things never change - even Albert Einstein had to admit. 'The hardest thing to understand in the world is the income tax.'

Good tax planning is an ongoing process...

Here are some of the matters you will need to consider when developing your tax plan:

• The independent taxation rules mean that each spouse is taxed separately. Make sure you take full advantage of this

• You can redistribute income-producing or appreciating assets between all members of your family. This enables you to make full use of personal allowances and capital gains tax (CGT) exemptions and/or pay tax at a lower rate although care needs to be taken that you are not caught by the special rules for parental gifts to minor, unmarried, children

• If you are 65 or over, you must take account of the income limit of £17,900 for 2002/03, above which the enhanced age-related income tax allowances are restricted. If possible, you may benefit from equalising your income with that of your spouse or partner

• If you are a company director, you will need to consider the timing of bonus payments or dividends, which are usually assessable in the tax year in which they are actually paid. Deferring a payment until after 5 April 2003 would mean that it would not be assessable until 2003/04

• You can make distributions to your children from family trusts to make the most of unused allowances for 2002/03.

Focus on your family

Although many people invite - and accept ? our advice on tax and financial planning for their businesses, or ask how to get the most tax-efficient remuneration package from their jobs, we never lose sight of the fact that, when it all boils down to it, most tax and financial planning is done to benefit you and your family.

For 2002/03
the first £4,615 of income is tax free
the next £1,920 is taxed at 10%
the next £27,980 is taxed at:
- 22% for most income.
- 20% for savings income.
- 10% for UK dividend income.
the remainder is taxed at 40%
(32.5% for UK dividend income)
the first £7,700 of capital gains are tax free. the remainder is taxedat the rates appropriate to savings income - i.e. 10%, 20% and/or 40%

Basic principles for 2002/03

The main point to bear in mind is that every member of your family is taxed as an individual ? entitled to his or her own allowances, rate bands and exemptions. Allowances and rates bands are allocated first to earned income (which includes pensions), then to savings income, then to UK dividend income, and finally to capital gains. If you want to avoid paying any unnecessarytax tomorrow, you will need to spend time on planning today. As accountants and tax experts, we are in the ideal

Always bear in mind that your planning needs to be:

• Comprehensive - covering all your immediate family and associated businesses and trusts.
• Considered - don't make hasty decisions just to save tax
• Continuous - tax planning should be a constant process.

Minimising capital gains tax

There are many ways of minimising your liability to CGT. For example, you can transfer assets that will increase in value to your spouse or children. We can help you develop strategies to make the maximum tax savings.

Capital gains - essentially, profits realised on the disposal of assets - are calculated by reference to the original cost of the asset and the disposal proceeds. Relief is given for inflationary gains to 1998 and subsequently there is a 'taper relief' which reduces the taxable gain by reference to the length of time an asset has been held, with a higher rate of relief, achieved sooner, for 'business' assets. In addition, the first £7,700 of gains are free of tax this tax year, with gains over this amount taxed at the rate appropriate to the top slice of your savings income, that is at 10%, 20% or 40%, or a combination of these rates.

There are valuable CGT reliefs, and we can advise you about these. One of the more important reliefs, retirement relief, is being phased out following the introduction of the business assets taper relief. However, up to £50,000 of qualifying gains can escape tax for 2002/03 by virtue of retirement relief, with up to £150,000 more ranking for a 50% exemption.

The value of retirement relief is being reduced, with the final relief being for disposals before 6 April 2003.

Could I loose out?
If, before 6 April 2003:
• you will be aged 50 or over, or
• you face early retirement due to ill-health, and
•you will have been in business for more than one complete year

Then you should discuss your options with us now.


Is it time to review your Will and estate plan?

We always recommend to clients that, having made a Will and started an estate plan, they should monitor and review both, to make sure they reflect any and all changes in their personal, business and financial circumstances. A review Is due if:

  • you have married, divorced, separated or become widowed
  • you have become a parent
  • you have become a grandparent
  • you or your wife have been diagnosed with a life threatening illness
  • your children have done any of the above
  • you have received an inheritance, or are likely to receive one soon
  • you anticipate problems with your creditors ? involving you, your spouse or children, or your business
  • you expect a challenge to your Will
  • you have started a new business
  • you expect to retire, or dispose of your business, in the next few years
  • your Will does not include an IHT saving nil-rate trust
  • you have acquired property or other assets of significant value
  • you have not written your life assurance into trust for your heirs
  • you are not satisfied that your wife will have enough income to live on you pre-decease her
  • your estate will not have sufficient liquid funds to pay the IHT due on your death
  • you have not executed an enduring power of attorney to provide for the management of your financial affairs in the event that you become incapacitated as a result of illness or injury
  • your family relies totally on the income you generate through your business (and you do not have
    adequate insurance cover, a succession plan, or a deputy who can run the business if you are temporarily unable to do so).

If any of the above reflect your own position, talk to us about reviewing your Will and your estate plan.

Minimising your PAYE liability

If you are an employee, you will be taxed under Pay As You Earn (PAYE). One of the main features of PAYE is the tax code, which is used by your employer to calculate the tax to be deducted from your earnings each week or month.

As a first step to minimising your PAYE deductions, you need to ensure that your PAYE code is correct. The Inland Revenue do make mistakes, or they may not know about changes in your circumstances.

You should also see that your remuneration package is tax and increasingly important - NI efficient. Many elements - from basic salary and pension provisions to company cars and share incentives can go to make up an attractive remuneration package, but some benefits and expenses payments can lead to unforeseen tax liabilities - consult us if you are in any doubt.

Building your wealth? Don't miss out on tax breaks

Are you making the most of your savings? Obviously, you will want to avoid paying tax on your savings and investment earnings if at all possible. Are you making sufficient use of the available tax shelters, such as ISAs an National Savings products, and investments qualifying for the special EIS, and VCT tax breaks? Investment in pension plans qualify for tax breaks, subject to limits on contributions.

Discuss your plans with us, so we can help you to evaluate whether acting now would be appropriate.

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