Windfall or Bonus?

If you are in the nice position of being offered or receiving a windfall or bonus, then you may think it is all happy days but do take a moment to consider before spending it all.

• Firstly, what have you received? The name can help to determine what you need to do next, so was it a gift, a prize, a bonus, a reward, a grant, an insurance payout, compensation, or sale proceeds.
• And what was it for? g. work done, sale of goods, gambling, being a good friend.
• Were there any stipulations as to its use e.g. to look after my cat, to replace/repair the car, to develop a prototype? So do you need to budget for these costs? Are there any penalties for failing to do so? Will the grant be repayable or the insurance company not pay out?
• Who does this windfall belong to? – you personally, your business or your company i.e. is it yours to spend or do you need to get it out of the business first or share it with others e.g. shareholders. It may even be in trust e.g. for a minor or the cat so not actually there for you to spend, other than on set things.
• Is it taxable? What are those taxes, will you or your company need to pay them, and if so, when? More budgeting!
• Does this have a knock-on effect to other taxes you pay or benefits you can claim e.g. a bonus could take you over the threshold for receiving child benefit or trigger reductions in personal allowances.
• Are there any other knock-on effects – insurance, VAT registration, security, maintenance, the type of accounts your business can produce etc?
• Are there options to how or when you take this windfall e.g. take a bonus as a tax free pension contribution or as salary, a capital or income distribution on sale of a business, or delay a sale until after the end of the tax year – so which is best for you?
• There may even be options not to take it e.g. a gift of a property you have to maintain is not a nice gift if you have no money to maintain it and can not sell it!
• Are there other mitigations you can take e.g. sell assets at a loss to offset a capital gain, donate to charity or postpose a dividend from your own company.
• There is then reporting – in accounts, on tax returns, to your family or the press. What assistance or support may you require?
• Some of these jobs may be ongoing not just one off e.g. preparing annual tax returns, maintaining the property, feeding the cat.
• And if the sum is big enough then there may be begging letters to deal with – from family, friends, charities maybe even the general public!
• Hence you may want assistance in dealing with this windfall, a secretary, or independent financial advisor.

Only when you have considered the above, and put away money for the taxes, and ongoing liabilities etc, will you then hopefully have money left to enjoy.

If you would like assistance with the tax issues surrounding your windfall or bonus, then we are happy to help.