Leading lawyers said recently that the 50% income tax rate did not cause the exodus many people had predicted.

David Jervis, head of tax at Eversheds, the international law firm, said he was actually not that surprised. The 50% tax rate is referred to as a temporary measure and the Chancellor and other senior coalition members back this up.

The expectation that the top rate will not remain with us for long, plus the inconvenience incurred by taxpayers such as online accountants in relocating and London’s position as a world leading financial centre, could have helped to close the migration floodgates for the moment.

However, Danny Alexander, the chief secretary to the Treasury, has said that people seeking the abolition of the top tax rate are “living in cloud cuckoo land”.

Boris Johnson, the Mayor of London, and Lord Lamont, a former Chancellor of the Exchequer, recently called on the government to abolish the 50% tax rate.

The Lib Dem minister defended the government’s plan for economic recovery and said we had a long and difficult road to travel down. He went on to blame the global economy for the sluggish economic growth the UK is currently experiencing. Increased commodity prices and the soaring price of oil were major factors to blame for the dire state of the British economy, he said.

Alexander also claimed that when it comes to tax cuts, the coalition would prioritise reducing the burden on low and middle income people who are struggling to make ends meet.

Mr Alexander’s claims came after Norman Lamont said the lame excuses such as the Royal Wedding and the Japanese earthquake were to blame for sluggish growth were politically inspired.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Pollice Verso by Fuyoh!

Those of us who have an income of £150k+ have the unwelcome prospect of a new 50% tax rate with effect from April 2010.

A multitude of mitigation and tax avoidance options have been suggested by several contractor accountants that range from the sensible to the ridiculous. Below we look at some of the available options and consider what the pitfalls could be.

Speed up the surrender of non-qualifying life policies

Accelerating the surrender of bonds (non-qualifying life policies) can be an effective way for higher rate taxpayers to escape he income tax liability incurred on higher rate taxpayers.

Be warned: The surrender is taxed per “policy year”, not tax year so ensure that any surrenders will be taxed pre April 2010.

Involve your spouse in your business

A taxpayer operating a company can allow their spouse to have 50% of the business shares even if they have little involvement in the business. The new 50% tax band extends the advantage of making such arrangements, as well as encouraging the transfer of income-producing capital to a lower-earning spouse.

Be warned: Make sure any such arrangements are set up correctly, otherwise they will not be successful. Also, the Government wants to block this option so it may just be a short-term solution.

Accelerate the payment of salaries, dividends and bonuses

You will clearly benefit by accelerating the payment of any dividends from your own company to pre 6 April 2010. Some commentators have extended this idea to paying, for example, three years’ salary in return for the employee waiving rights to salary for the same period.

Be warned: The “accelerated salary” will is fraught with potential danger and should only be used for family businesses.

Executive remuneration – use of share options

After the new tax rate comes into force, the difference between income tax (up to 50%) and Capital Gains Tax (up to 18%) will be greater than ever. Converting income into capital is an attractive option, especially for executive remuneration where share options are popular.

Be warned: There is highly complex legislation surrounding employee incentives and you should seek professional advice. Other “conversion” techniques are subject to longstanding and byzantine anti-avoidance legislation. Implement with caution!

Check your bank accounts

Banks pay interest on deposits at regular intervals, sometimes annually. If you’re likely to receive a significant interest payment in, say, May, the only sensible way of accelerating this is likely to be by way of closing the account. Be warned: Banks have penalties for closing accounts that could out-strip the benefits.

Change your accounting periods

A change of accounting date can have the effect of accelerating profits into 2009/10 if you run an unincorporated business.
Be warned: As with most financial dealings, the rules dealing with this are complex and often have unexpected effects. It’s imperative that you seek professional advice before implementing such a change.

What next?

As there are obvious pitfalls attached to all these methods, you should seek professional advice from your financial advisor or online accountant before implementation.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Heroes by Frederic Poirot