One of the possibly unintended consequences of the chancellor’s recent Budget 50% tax rate hike is the encouragement of private and family businesses to keep their profits within the business.

Although withdrawing money from a company attracts corporation tax at 25%, if that then goes into a personal account it is taxed at 40% to 50% for higher rate tax payers (the 50% rate effective for those earning over £150k from April 2010).

Keeping the funds in the business is a viable choice for those who don’t need the money right now personally. The business can invest the money, upon which any profits are only going to be taxed at 25%.

If and when the business gets sold, the owners will only have to pay an 18% tax on the capital gain, with only 10% payable on the first million pounds.

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This entry was posted on Thursday, June 4th, 2009 at 12:39 pm and is filed under Tax Issues, Trends. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.