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STEP - Tax Led Investments

STEP - Tax Led Investments. Alex Nicklin- Financial Planner & Wealth Manager 5 March 2015. Risk Warning. Tax Led Investments are potentially higher-risk, longer-term and less liquid investments; investors may get back less than expected and may have difficulties selling their investment

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STEP - Tax Led Investments

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  1. STEP - Tax Led Investments Alex Nicklin- Financial Planner & Wealth Manager 5 March 2015

  2. Risk Warning • Tax Led Investments are potentially higher-risk, longer-term and less liquid investments; investors may get back less than expected and may have difficulties selling their investment • Tax Led Investments should only be considered once other planning opportunities have been fully explored • The levels and basis of taxation may be subject to change and may impact negatively on any Tax Led Investment • Any tax treatment depends on the individual circumstances of each investor and may be subject to change • These investments may lose their tax status through decisions made by the investment manager • You are encouraged to seek independent tax advice before considering these investments • Tax Led Investments should form only a small part of the client’s portfolio • This presentation/article/document is solely for professional advisers and should not be construed as investment advice

  3. Agenda • Tax Led Investments • What are they? • VCT, EIS, and BPR compared • Risks and risk mitigation • Who benefits? • Tax Led Solutions • Before and after retirement • Estate planning • Tax planning • Tax Led Service • How do we select suitable investments?

  4. Tax Led Investments – what are they?

  5. Tax Led Investments – Comparison

  6. Tax Led Investments – examples

  7. Tax Led Investments – what risks? Text separate from box Text separate from box

  8. Tax Led Service – who benefits? • FCA Definition • Net Investable assets exclude • Primary residence or any money raised through a loan secured on that property; • Any rights under a qualifying contract of insurance; or • Any benefits (in the form of pensions or otherwise) which are payable on the termination of service or on death or retirement  • FCA Developments • Potential to increase the HNW criteria in line with USA and EU • Exceptions • Clients may invests more than 10% of their net assets when this does not impact on their (long-term) cash flow and/or capacity for loss

  9. Tax Led Investments – EIS Loss Relief

  10. Tax Led Solutions – before retirement • VCT Example • Client restricted by lower pension contribution levels • Concerned over income levels in retirement • Financial planning indicates gap in retirement funding of £300,000 • Adviser recommends £75,000 in VCTs per year for 4 years • Investment £75,000 • Income Tax relief £22,500 • After 4 years • VCT Portfolio £300,000 • Income @ 5% p/a £15,000 • Tax relief is re-invested in SIPP and ISA of client (and spouse)

  11. Tax Led Solutions – before retirement

  12. Tax Led Solutions – tax planning Rolling EIS investment program Year 1 Year 5 Year 3 Year 6 Year 7 Year 2 £100,000 £100,000 £100,000 £100,000 £100,000 £100,000 EIS Investment £30,000 £30,000 £30,000 £30,000 £30,000 £30,000 30% income tax

  13. Tax Led Solutions – before retirement • EIS Example • Client not started a retirement plan yet • Client restricted by lower pension contribution levels • Financial planning indicates gap in retirement funding of £785,000 • Adviser recommends £70,000 in EIS per year for 24 years using 4-year rolling EIS investment programme • Investment £70,000 • Income Tax relief £21,000 • Pension contribution £26,250 (gross) • ISA contribution £6,563 • After 24 years Retirement fund of £787,500 • EIS Portfolio of £280,000

  14. Tax Led Solutions – at retirement • Tax Free Retirement • The client • has a SIPP valued at £1.2 million • qualifies for state pension • takes £300,000 (25%) and draws down balance at £60,000 p/a • will have annual taxable income of £56,000 (excl personal allowance) • will have a net income of £49,000 and an income tax bill of £16,000 • The adviser recommends £56,000 in EIS per year indefinitely using 4-year rolling EIS investment programme • Investment £56,000 • Income tax relief £16,800 • Annual tax free income £65,000 • NB All figures are approximate

  15. Tax Led Solutions – after retirement • Flexible Drawdown and EIS • Client has a SIPP valued at £300,000 and £285,000 spare cash • Client is suitable for flexible drawdown • Financial planning indicates no need for funds • Client is concerned about paying 45% income tax on drawdown • Client also concerned about paying 55% in inheritance tax • Adviser recommends £100,000 drawdown per year for 3 years • Adviser recommends £150,000 in EIS per year for 3 years • Drawdown £100,000 Investment £55,000 (proceeds) • £95,000 (spare cash) • £150,000 • Tax charge £45,000 Tax break £45,000 • Net cost NIL

  16. Tax Led Solutions – estate planning • Tax Led Gifting • Client is 75 years old and has 2 children • Client holds £100,000 in VCTs providing £5,000 tax free income • Financial planning indicates no need for income • Total estate value £1 million • Adviser recommends gifting of VCTs 50/50 to children • After 7 years estate worth £900,000 • Client has saved £40,000 on IHT • Children have each received £17,500 tax free income over 7 years

  17. Tax Led Solutions – estate planning • Estate Planning and EIS • Client is 70 years old • Client has an estate worth £2 million • Client pays £30,000 per year in income tax on pension (and other) income • Client is concerned about inheritance tax liability • Adviser recommends a series of conventional estate planning solutions • Client becomes concerned about losing too much control • Adviser also recommends an EIS investment • Investment: £200,000 • Income tax relief: £60,000 • IHT relief: £80,000

  18. Tax Led Solutions – School Fees • Tax Efficient School Fee Planning • Client is concerned about future school fees for his child • Adviser recommends £85,000 in EIS per year for the duration of the child’s education using 4-year rolling EIS investment programme • After the child finishes their education the client discontinues the re-investment programme (or continues this into retirement) • Investment: £85,000 • Income tax relief: £25,500 • School fees: £25,000

  19. Tax Led Solutions – tax planning

  20. Tax Led Solutions – Business Investment Relief Client Value Investment Management Services Core services

  21. Tax Led Service – selection process • Application of minimum selection criteria to whole of market • Product Selection Committee • Product Selection Committee

  22. Questions?

  23. Thank you Towry Ltd, 3rd Floor, Portwall Place, Portwall Lane Bristol BS1 6NA www.towry.com

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