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It’s Not Necessarily Natural Delivering tax efficient “income” through intelligent wrapper choice

With our research partners. It’s Not Necessarily Natural Delivering tax efficient “income” through intelligent wrapper choice [September 2013]. Disclaimer.

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It’s Not Necessarily Natural Delivering tax efficient “income” through intelligent wrapper choice

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  1. With our research partners... It’s Not Necessarily Natural Delivering tax efficient “income” through intelligent wrapper choice [September 2013]

  2. Disclaimer These slides and the presentation in which they are used are put forward for general consideration only. They are based on fictitious persons. No action must be taken or refrained from based on their content. Accordingly, neither Technical Connection Limited nor any of its officers or employees can accept any responsibility for any loss arising of whatever nature to any person. Professional advice based on the facts of each case is essential.

  3. Target Learning Outcomes Understanding:

  4. In relation to income it’s about…

  5. When? INCOME NEED STARTS ACCUMULATION Growth Risk Tax Efficiency DRAWDOWN Growth Risk Tax Efficiency ? UNCERTAINTY AS TO WHEN AND HOW MUCH advice determines HOW

  6. What is Retirement? BARCLAYS WEALTH INSIGHT REPORT (2000 HNWIS: > £1M TO INVEST)

  7. What is Retirement?

  8. What is Retirement? UNPREDICTABILITYrules UNPREDICTABILITYover when income might be needed or how much income might be needed AND UNPREDICTABILITYover • health/vitality • investment returns • taxation

  9. How to Produce Income When income from employment or business ownership ceases or reduces

  10. It’s Natural… Isn’t it? • Natural income (interest/yield) essential to - deliver “spendable income” - drive capital growth Barclays Equity Gilt Report: “Over half of total returns come from reinvested dividends” Capital growth Total return Reinvested dividends

  11. And… For other than pension, ISA, VCT, EIS…

  12. Portfolio Wrapper Choice Wrapper choice makes a Difference to the bottom line

  13. Bonds are Dead Post-RDR? BUT, ULTIMATELY… IT ALL DEPENDS ON THE FACTS

  14. The New World for Tax Planners BEING AWARE OF THE ZEITGEIST

  15. HMRC Need to Close the Gap STARS TAARS GAAR

  16. TAAR… But No Thanks NEW IHT RULES FOR DEDUCTING LIABILITIES

  17. General Ant(i) Abuse Rule You stupid , idiotic, Geordie TV presenter

  18. Tax Planning Today BORING IS THE NEW EXCITING

  19. Tax planning minimises risk Minimising tax makes achieving the target easier…. so minimises risk

  20. Taxation in Accumulation Minimising tax on income during accumulation maximises return on an important component of overall growth

  21. High Yield Investment: Higher Rate Taxpaying Investor Invested: £100,000 Term: 10 years Fund: 20% fixed interest: 5% interest 0% growth 80% equity: 5% yield 2.5% growth Income tax: 40% through investment period CGT: Use annual exemption each year

  22. High Yield Investment: Higher Rate Taxpaying Investor PRE ENCASHMENT £196,715 £193,069 £172,440 OFFSHORE BOND UK BOND COLLECTIVE

  23. High Yield Investment: Higher Rate Taxpaying Investor POST ENCASHMENT (Higher rate taxpayer) £174,455 5.72% £172,392 5.6% £158,029 4.68% OFFSHORE BOND UK BOND COLLECTIVE

  24. High Yield Investment: Higher Rate Taxpaying Investor POST ENCASHMENT (Basic rate taxpayer) £193,069 6.8% £177,372 5.9% £172,410 5.6% OFFSHORE BOND UK BOND COLLECTIVE

  25. Growth Investment

  26. Growth Investment PRE ENCASHMENT £196,715 £196,715 £182,321 OFFSHORE BOND UK BOND COLLECTIVE

  27. Growth Investment POST ENCASHMENT :Higher rate taxpayer £193.575*6.83% £165,857 5.19% £158.029 4.68% OFFSHORE BOND UK BOND COLLECTIVE * Less if annual exemption not used each year

  28. Growth Investment POST ENCASHMENT : Basic rate taxpayer £194,696* 6.89% £182,321 6.19% £177,372 5.9% OFFSHORE BOND UK BOND COLLECTIVE * Less if annual exemption not used each year

  29. Balanced Fund: Higher Rate Taxpaying Investor

  30. Balanced Fund PRE ENCASHMENT £208,028 £201,210 £187,362 OFFSHORE BOND UK BOND COLLECTIVE

  31. Balanced Fund POST ENCASHMENT :Higher rate taxpayer £187,362*6.48% £180,968 6.11% £164,817 5.12% OFFSHORE BOND UK BOND COLLECTIVE * Less (£177,496) if annual exemption not used each year

  32. Balanced Fund POST ENCASHMENT : Basic rate taxpayer £201,210 7.24% £187,362* 6.48% £186,423 6.43% OFFSHORE BOND UK BOND COLLECTIVE * Less (£181,019) if annual exemption not used each year

  33. … And When You Need The Money POSSIBLE CHOICES SELF SME PROFIT/ INCOME PENSIONS >75 >75 CONTINUED EMPLOYMENT SE ISA INSURANCE PRODUCTS (BONDS) VCT/ EIS COLLECTIVES ● Risk ● Income tax ● CGT ● IHT

  34. Immediate “Income” from Bonds / Collectives

  35. Immediate “Income” from Bonds / Collectives Investment value at end of 20 years after £5,000 PA £181,991 £170,004 6.75% 20% £145,593 6.21% £136,003 5.98% £135,163(20%/40%) 5.96% 20% 40% £109,195 5.27% 40% OFFSHORE BOND ONSHORE BOND COLLECTIVE

  36. Immediate “Income” from Bonds / Collectives Investment value at end of 20 years after “income” of 5% PA of fund value £136,723 £132,482 6.58% 20% £114,107 (20%/40%) 5.96% * £110,978 5.95% 20% £105,985 5.93% 40% £83,234 5.17% 40% OFFSHORE BOND ONSHORE BOND COLLECTIVE * Less net income

  37. Deferred “Income” from Bonds / Collectives

  38. Deferred Income Post tax investment value after 20 years £201,508 6.31% £185,574* 5.83% £168,742 5.77% OFFSHORE BOND UK BOND COLLECTIVE * Less (£175,427) if annual exemption not used each year

  39. Wrapper Allocation CONSISTENT WRAPPER OUTCOME: ONE WRAPPER DIFFERENT WRAPPER OUTCOMES: WRAPPER ALLOCATIONS MODEL SEVERAL LIKELY/POSSIBLE COMBINATIONS OF VARIABLES WRAPPER SELECTION DETERMIEND BY VARIABLES ▪ Terms ▪ Yield ▪ Growth ▪ Tax

  40. Adviser Charging Facilitated Through Investments FACT: Most advisers wish to facilitate adviser charging through financial products / investments

  41. Taxation and Investment Facilitated Adviser Charging FROM OWN CASH NO TAX Adviser IMPLICATION PENSION FUND NO TAX Adviser IMPLICATION ISA NO TAX Adviser (But do you want to do it?)

  42. Taxation and Investment Facilitated Adviser Charging Payments from Collectives NO TAX CASH ACCOUNT * ADVISER SMALL PART DISPOSALS CGT Event * Possibly topped up through rebalancing but would reduce “net of fees” income

  43. Taxation and Investment Facilitated Adviser Charging INVESTMENT BOND Chargeable Adviser disposal (5% rule)

  44. Adviser Charging and Trust Solutions FACILITATING ADVISER CHARGING THROUGH RIPS IN TRUST

  45. Charges for Ongoing Advice With financial products in trust….. TRUST Paid from trust? Breach/GWR BOND W/D COLL SALE GIA CASH ACCOUNT Charge for initial advice Settlor No tax Possible tax Paid from own funds: No tax Paid by Settlor? Further gift (Poss N.EXP) (Exclude right to reclaim?) Charge for ongoing advice

  46. Investing for Tax Effective Income: Trustees INCOME DRIVING ACCUMULATION DISCRETIONARY TRUSTS Dividends: 37.5% (30.5%) * Interest: 45% Capital gains: Assessed on Settlor If Settlor deceased/non-UK resident Ch Gains 25% (UK 45% (offshore) * Standard rate on first £1,000 pa

  47. Investing for Tax Effective Income: Trustees INCOME DRIVING ACCUMULATION INTEREST IN POSSESSION TRUSTS Dividends: Interest: Capital gains: 28% Chargeable gains Assessed on Settlor .. If Settlor deceased/non-UK resident: Trustees: 25% (UK) 45% (offshore) Assessed on Beneficiary

  48. Investing for Tax Effective Income: Trustees INCOME DRIVING ACCUMULATION

  49. Investing for Tax Effective Income: Trustees To deliver regular, tax efficient payments to beneficiaries DISCRETIONARY TRUST Divis Interest Capital COLLECTIVES Income Capital (chargeable gain) UK BOND Capital Capital (chargeable gain) OFFSHORE BOND

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