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Minimise the family tax bill

IN the same way that the family is the bedrock of society, the family business is still the mainstay of the business community and the market economy.

For these businesses, tax is a real cost and in order to ensure that businesses make a reasonable return for the risks of being in business we need to manage both the tax cost of the business and that of the owners of the business.

Whilst the reduction of corporation tax to 20 per cent has given many businesses the confidence to grow the complexity of the tax system, rewarding the owners for their efforts in many ways represents a greater

IN the same way that the family is the bedrock of society, the family business is still the mainstay of the business community and the market economy.

For these businesses, tax is a real cost and in order to ensure that businesses make a reasonable return for the risks of being in business we need to manage both the tax cost of the business and that of the owners of the business.

Whilst the reduction of corporation tax to 20 per cent has given many businesses the confidence to grow the complexity of the tax system, rewarding the owners for their efforts in many ways represents a greater challenge than the wealth creation process.

The debate surrounding the tax efficiency of the mix between dividends and salaries is complex. In pure tax terms the taking of dividends tends to be more tax efficient but often non-tax issues such as the relationship between working and non-working shareholders tend to muddy the water.

This complex debate is then distorted by the legacy of Alistair Darling’s 2009 budget, which introduced an effective rate of tax (including NIC) of 62 per cent on incomes between £100,000 and £120,000 before reducing back to an effective rate of tax of 42 per cent once incomes exceeded £120,000. These high marginal rates of tax tend to distort remuneration planning and encourage the retention of profit, which in turn reduces the Government’s tax intake.

From the point of view of the overall tax intake from the family business the pension regime is still an effective form of tax relief with the added benefit of both providing for the future and ring fencing funds outside the business. However, whilst the pension regime has become much more liberal regarding the taking of benefits, the rapid reduction in life time limits will make pension planning much less attractive.

The forthcoming Budget on 8 July gives George Osborne the opportunity to build on his corporation tax strategy, which encourages business growth by incorporating a similar approach to personal tax return. This both simplifies the system and removes high marginal rates of tax. A simplification of the tax system would mean that entrepreneurs can concentrate on wealth creation rather than wealth preservation.

If you would like to discuss how best to manage you business’s tax costs, contact Regional Head of Corporate Tax, Nigel Syson, on 01604 746760 or via email at

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