Key tax planning strategies for owner managed businesses in 2008
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Key tax planning strategies for owner managed businesses in 2008. Chair: Peter Jolly Head of Distribution Policy, Standard Life Tony Wickenden job title. BUSINESS INTELLIGENCE Financial Planning strategies for SMEs.

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Key tax planning strategies for owner managed businesses in 2008

Chair: Peter JollyHead of Distribution Policy, Standard Life

Tony Wickendenjob title


Business intelligence financial planning strategies for smes l.jpg

BUSINESS INTELLIGENCE 2008Financial Planning strategies for SMEs

Business Intelligence - Financial Planning Strategies for SMEs


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These slides as part of the whole presentation are provided strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

[email protected]

0207 405 1600


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RECIPE FOR SUCCESS strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

CLIENTS

Existing

New

1

3

STATED

N

E

E

D

S

U N S T A T E D

2

4

Business Intelligence - Financial Planning Strategies for SMEs


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OPPORTUNITY 1 strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

MINIMISING TAX ON CROSSING THE TAX BARRIER

Business Intelligence - Financial Planning Strategies for SMEs


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THE CHOICES FOR NON-RETAINED FUNDS strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

(Retained funds dealt with in “corporate investment”)

  • EBT/FBT

  • Dividend, salary, pension

Business Intelligence - Financial Planning Strategies for SMEs


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FAMILY BENEFIT TRUST strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

THE HISTORY

  • EBTs

  • FA1989 S43

  • Dextra

  • FA2003 sch 24

  • SEMPRA


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FBT strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

THE ISSUES

  • Deductibility

  • Assessability

  • IHT


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FBT strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

“Post Sempra”

  • FBT

  • (usually offshore)

  • Employees

  • Directors

  • Family

£

Loan

Employee/Director/family member

Employer

(Debt)

Non Deductible

Tax on benefit

HMRC


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DIVIDEND/SALARY FUNDAMENTALS strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

DIVIDEND

SALARY

  • Non-deductible

  • Paid from post-tax profits

  • No NIC

  • HRT - 31.1 in next tax year

  • Pensions?

  • No State bens

  • “Arctic”/Income shifting

  • Deductible

  • NIC (inc 1% s/c)

  • All tax deducted at source

  • Pensions implications

  • State bens

  • H/W planning - care “wholly & exclusively”

Business Intelligence - Financial Planning Strategies for SMEs


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  • BEST OPTION? strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

  • NET ERD* NET ERD* DIVS OR DIV SAL SALARY £ £

  • (a) 21% Taxpaying Company

  • (Profits up to £300,000)

  • (i) 20% personal tax rate 7,900 21% 6,117 38.83% DIV

  • (ii) 40% personal tax rate 5,925 40.75% 5,230 47.7% DIV

  • * ERD = effective rate of deduction

Business Intelligence - Financial Planning Strategies for SMEs


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  • BEST OPTION? strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

  • NET ERD* NET ERD* DIVS OR DIV SAL SALARY £ £

  • (b) 28% Taxpaying Company

  • (Profits over £1.5 m)

  • (i) 20% personal tax rate 7,200 28% 6,117 38.83% DIV

  • (ii) 40% personal tax rate 5,400 46.0% 5,230 47.7% DIV

  • * ERD = effective rate of deduction

Business Intelligence - Financial Planning Strategies for SMEs


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EFFECTIVE COMMUNICATION strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

  • BEST OPTION?

  • NET ERD* NET ERD* DIVS OR DIV SAL SALARY £ £

  • (c) 29.75% Taxpaying Company

  • (Profits between £300,000 - £1.5m)

  • (i) 20% personal tax rate 7,025 29.75% 6,117 38.83% DIV

  • (ii) 40% personal tax rate 5,043 47.32% 5,230 47.7% DIV

  • * ERD = effective rate of deduction

Business Intelligence - Financial Planning Strategies for SMEs


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WHERE THE OBJECTIVE IS “SAVING…” strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.THE PENSION ALTERNATIVE...

REGARDLESS OF THE PERSONAL/CORPORATE TAX RATE…

ERD

0%

…But …. it’s in a pension

Business Intelligence - Financial Planning Strategies for SMEs


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Wholly And Exclusively strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

  • “it will be relatively rare in the context of pension contributions to have to consider whether there is a non-trade purpose for the employer’s decision to make the contribution.”

Business Intelligence - Financial Planning Strategies for SMEs


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BIM 47106 strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

Business Intelligence - Financial Planning Strategies for SMEs


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OPPORTUNITY 2 strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

CORPORATE INVESTMENT

Business Intelligence - Financial Planning Strategies for SMEs


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SO WHAT CHANGED? strictly for general consideration only. No action must be taken or refrained from based on these slides or the words supporting them. Accordingly, neither Technical Connection Ltd nor any of its officers or employees can accept any responsibility for any loss occasioned through any such action or inaction.

Inheritance tax

.

Families

Loan relationship rules apply to ALL investment life assurance contracts

Businesses

THE BUSIENSS LIABILITY ASSESSMENT AIMS TO CHANGE ALL THAT THROUGH:

Business Intelligence - Financial Planning Strategies for SMEs


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SO WHAT ARE THE PRODUCT / TAX FUNDAMENTALS FOR CORPORATE INVESTORS NOW?

Inheritance tax

1

Businesses

2

3

4

Business Intelligence - Financial Planning Strategies for SMEs


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DEPOSITS INVESTORS NOW?

Inheritance tax

Businesses

Business Intelligence - Financial Planning Strategies for SMEs


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COLLECTIVES INVESTORS NOW?

Inheritance tax

  • Dividends tax free

  • Only gains above indexation taxed on realisation

  • No annual charge regardless of accounting basis

  • Loan relationship rules = potential for annual tax charge

Businesses

Business Intelligence - Financial Planning Strategies for SMEs


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UK BONDS INVESTORS NOW?

  • No annual tax

  • Gross up final gain @ 20%

  • Apply CT to final G.U gain

  • Deduct tax credit from CT to find final liability

  • Annual tax charge possible

  • Growth in value taxed (not grossed up)

  • Final charge on encashment

  • Gross up all growth by 20%

  • Add the “surplus” to gain in final year

  • Apply C.T

  • Take off tax credit

Business Intelligence - Financial Planning Strategies for SMEs


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OFFSHORE BONDS INVESTORS NOW?

  • Annual tax charge possible

  • Growth in value taxed

  • Final charge on encashment

  • No tax credit

  • No annual tax

  • Final gain taxed at investing companies CT rate

Inheritance tax

1

2

Businesses

Business Intelligence - Financial Planning Strategies for SMEs


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THE CORPORATE INVESTMENT OPPORTUNITY INVESTORS NOW?

CHANGE = OPPORTUNITY

What you need

Business Intelligence - Financial Planning Strategies for SMEs


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CORPORATE INVESTMENT... FIRST CHECK INVESTORS NOW?

  • Loan repayment

  • Distribution

  • Access to funds

  • Entrepreneurs relief

  • Attitude to risk

Business Intelligence - Financial Planning Strategies for SMEs


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Anxiety Creation – Liability Audit INVESTORS NOW?

OPPORTUNITY 3

AVOIDING

A SELF CREATED RECESSION

  • Confidence though understanding

Business Intelligence - Financial Planning Strategies for SMEs


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OWNER/MANAGER KEYPERSON INVESTORS NOW?

Premiums

  • The wholly and exclusively test

  • No duality of purpose

  • Purpose tested at outset

    Sum Assured

  • Normally only assessable if premiums deductible

  • ‘Capital’ receipt not assessable

  • Dual purpose?


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OPPORTUNITY 4 INVESTORS NOW?

BUSINESS SUCCESSION

  • Business Assurance is about solution NOT product

  • Business Assurance is an “advisers game”

  • And it is in no danger of being disintermediated

Business Intelligence - Financial Planning Strategies for SMEs


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Let us check you qualify for INVESTORS NOW?100% Business Property Relief

The share purchase/sale agreement

Answer

“there isn’t one

No IHT problem but there is need

to put in place an appropriate agreement

policy/trust - to meet agreed objectives

Business Intelligence - Financial Planning Strategies for SMEs


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Answer INVESTORS NOW?

“Here it is”

Is it “binding”?

No

Yes

100% BPR denied

so revise

Is the “price”

right?

Business Intelligence - Financial Planning Strategies for SMEs


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Is the “price” INVESTORS NOW?

right?

No

Yes

Revise/amend

Will adequate funds/life

cover exist to facilitate

the purchase?

Business Intelligence - Financial Planning Strategies for SMEs


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Will adequate funds/life INVESTORS NOW?

cover exist to facilitate

the purchase?

No

Effect appropriate

cover/increase existing

cover

Yes

Are the policies subject

to appropriate trust?

Business Intelligence - Financial Planning Strategies for SMEs


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Are the policies subject INVESTORS NOW?

to appropriate trust?

No

New policy/replacement

policy and trust could be

required

Yes

But

OK! Review plans

regularly

Business Intelligence - Financial Planning Strategies for SMEs


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OPPORTUNITY 5 INVESTORS NOW?

MINIMISING TAX ON BUSINESS SALE

Business Intelligence - Financial Planning Strategies for SMEs


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WHAT CGT CHANGES MEAN FOR BUSINESS OWNERS INVESTORS NOW?

Pre 06.04.2008

Post 05.04.2008

Business Intelligence - Financial Planning Strategies for SMEs


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ENTREPRENEUR’S RELIEF INVESTORS NOW?

  • 10% (effective rate) for first £1m of lifetime gains – 18% after

What?

How?

  • Gains reduced by 4/9

Sarah sells trading business & makes gains of

Reduction of 4/9 (entrepreneurial relief)

Taxable

CGT @ 18%

£450,000

£200,000

£250,000

£45,000

(ER10%)

Business Intelligence - Financial Planning Strategies for SMEs


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ENTREPRENEUR’S RELIEF INVESTORS NOW?

  • Sole traders

  • Partners

  • Shareholders with “material interest

Who carry on the trade

Who?

Detail

“Associated disposals” can qualify

e.g. Property used by business but owned by disposer of business and disposed of at same time as business

  • Trading businesses (not property letting)

  • No minimum age

  • 1 year minimum

  • Shareholder must be an officer or employee and own minimum 5% OSC of company

Business Intelligence - Financial Planning Strategies for SMEs


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Non Trading INVESTORS NOW?

ENTREPRENEUR’S RELIEF

THE TRADING TEST...

Wholly for the purpose

of carrying on a trade

80%

20%

Non-trading OK

if not substantial

Business Intelligence - Financial Planning Strategies for SMEs


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OLD AND NEW COMPARED INVESTORS NOW?

No change

Business Intelligence - Financial Planning Strategies for SMEs


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CGT ON BUSINESS SALES INVESTORS NOW?

NEW v OLD REGIMES..

Business Intelligence - Financial Planning Strategies for SMEs


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MY BUSINESS IS MY PENSION INVESTORS NOW?

VALUE

DRIVERS

BARRIERS TO

REALISING VALUE

  • Strong, growing profits

  • Predictable revenues/cost control

  • Non-reliance on owners

  • Scalable products / services

  • Little or no competition

  • Strong brand

  • Innovation

  • Strong client base

  • high value assets

  • No debt

  • Timing

  • Technology

  • Economic cycle

  • Availability of capital

  • Buyers

  • Health

  • Tax

  • law / Regulation

How many are present?

How many are relevant?

Business Intelligence - Financial Planning Strategies for SMEs


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OPPORTUNITY 6 INVESTORS NOW?

ESTATE PLANNING FOR BUSINESS OWNERS

Business Intelligence - Financial Planning Strategies for SMEs


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FOR PARTNERS AND SHAREHOLDERS INVESTORS NOW?

THE SPOUSAL BY-PASS

Business Intelligence - Financial Planning Strategies for SMEs


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WITHOUT SPOUSAL BY PASS INVESTORS NOW?

DECEASED

A

No IHT

Shares

Widow/er

Policy proceeds

No IHT

B + C

Business Intelligence - Financial Planning Strategies for SMEs


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WITHOUT SPOUSAL BY PASS INVESTORS NOW?

DECEASED

A

No IHT

Shares

Widow/er

IHT?

Policy proceeds

No IHT

B + C

Business Intelligence - Financial Planning Strategies for SMEs


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WITH SPOUSAL BY PASS INVESTORS NOW?

A

Deceased

NO IHT (BPR)

Shares

Widow/er

Policy proceeds

DEBT

Loan/ advance

B & C

£

Wide Disc Class

(Surviving shareholders)

Shares

Business Intelligence - Financial Planning Strategies for SMEs


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CARE!! INVESTORS NOW?

Business Intelligence - Financial Planning Strategies for SMEs


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NO SPOUSAL BY-PASS INVESTORS NOW?

£ Estate 700,000 Share purchase proceeds 300,000 _______ 1,000,000 Spent 300,000 _______ Taxable 700,000 _______ IHT 155,200 Net estate 544,800 _______ Net for beneficiaries 544,800

Business Intelligence - Financial Planning Strategies for SMEs


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WITH SPOUSAL BY-PASS - SUM TO BEAT £544,800 INVESTORS NOW?

ESTATE TRUST£ £Estate 700,000Share purchase proceeds - 300,000_______ 700,000Borrowed from trust 300,000 300,000

_______ 1,000,000Spent 300,000_______ 700,000Debt (owed to trust) 300,,000_______Taxable 400,000IHT 35,200Net estate 364,800+ Trust fund (IIP / DISC) 300,000_______Net for beneficiaries 664,800

Business Intelligence - Financial Planning Strategies for SMEs


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A BIG IMPROVEMENT INVESTORS NOW?

+ £120,000

Business Intelligence - Financial Planning Strategies for SMEs


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AND FINALLY INVESTORS NOW?

ITS NOT HOW GOOD YOU ARE:

IT’S HOW GOOD YOU WANT TO BE

Business Intelligence - Financial Planning Strategies for SMEs




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