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Tony Wickenden, Technical Connection · ITS ALL ABOUT “SUITABILITY” • A high risk thatA high...
Transcript of Tony Wickenden, Technical Connection · ITS ALL ABOUT “SUITABILITY” • A high risk thatA high...
How to deliver effective, acceptable and non egregious tax planning solutionsTony Wickenden
Technical ConnectionTechnical Connection
Tony Wickenden, Technical Connection
Permission to plan
These slides and the presentation in which they are used are put forward for general
consideration only They are based onconsideration 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
t ibilit f lcan accept any responsibility for any loss arising of whatever nature to any person. Professional advice based on the facts of
each case is essential.
ADVICE IMPERATIVES
TONY WICKENDEN
TECHNICAL CONNECTION
YOUR MOST PRECIOUS COMMODITY
BUT WHERE DOES IT GO?
IF ONLY I HAD TIME ……
Focus on what consumersconsumers want, value and will pay
for
FINANCIAL ADVICE: FUNDAMENTAL QUESTIONS
Who will pay for it?
Why will they pay for it?Why will they pay for it?
What will they pay for?
What attributes will financial advisers need to demonstrate to succeed
How with they engage
(with thanks to JP Morgan)
WHO WILL BUY?
85% of those with household income £50k + (£6m)
93% of those with household income £150k - £250k
….but how will they buy …and how much will they pay?
“TASK BASED” OR ONGOING ADVICE MODEL?
40 % of prospective advice users state “task based” as their preferred means of engagement
13% f ti d i ld id “ i f ”13% of prospective advice users would consider “ongoing fees”
WHY WILL CLIENTS PAY FOR ADVICE?(HOWEVER IT’S DELIVERED)
Recognition of the limits of their own knowledge
The adviser has expertise that the consumer doesn’t possess or can’t get by “googling”
The adviser makes them aware of the need/risk/opportunity
WHAT ATTRIBUTES ARE NEEDED FOR ADVISER SUCCESS?
Demonstrable knowledge, expertise,
understanding, empathy Track record
Complete client focus
Pro-activity Enthusiasm / motivation
SO WHAT WILL THEY PAY FOR?
Basically, what they perceive as “difficult / complex”
Pensions planningp g
Investment planning:
personal , trustee , corporate
Tax planningInvesting for children
Estate planning / management
EXPERTISE / TIMESAVING
Other than “straightforward”
protectionMortgages
AND ON TAXATION SPECIFICALLY….
62% of 55 – 65 year olds are worried about tax
69% of those with £100k - £150k investable are worried about tax
57% want financial adviser input to minimise tax
21% cite estate management/planning21% cite estate management/planning as a concern…. 66% of these say they would want professional advice to address this concern
AND IF WE ARE TALKING ABOUT TAX ….
You can’t have missed that it’s in the news
Tax and tax planning polarises opinions
Government committed to action
S So……….
What’s going on?
Anti Tax Avoidance
A LOT!
General anti-abuse rule (consultation)
£50 000/25% income tax relief cap £50,000/25% income tax relief cap (consultation)
“Enhanced DOTAS” :more advance information and negative publicity
(lifting the lid on tax avoidance)( g )
Continued HMRC success in tribunal/court cases
Public opinion (Times campaign)
MIND THE GAP
35bn (HMRC)( )
120bn (Tax Research)
THE HISTORY
Lord Clyde in the “Duke of Westminster” Case 1929:
No man in the country is under the smallest obligation, moral or other, so y g , ,to arrange his legal relations to his business or property as to enable the
Inland Revenue to put the largest possible shovel in his stores.
The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting
the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by
the Inland Revenue.
GAAR BACKGROUND
Strong “morality fuelled” media
press re
“Something must be done”
Judges having to strain the
interpretation of written law to “fill in
the gaps” andpressure do e the gaps” and enforce parliament’s
intention.
THE “AARONSON TEST”
Everyday tax planning NOT affected unless the arrangement was:
Abnormal
Was contrived to achieve that
result
Achieved an “abusive” result
WHAT IS “NORMAL” THEN?
One that was substantially (or entirely) tax motivated
ABNORMAL
ACTION NEEDEDACTION NEEDED( ACCORDING TO THE GOVERNMENT)
GAAR
An effective deterrent against artificial and abusive tax avoidance“
“
artificial and abusive tax avoidance.
Removing the need for future Targeted Anti-Avoidance provisions.
Enabling simpler future legislation
“
“ “
“
“
Enabling simpler future legislation
Influencing the culture of tax planning.
“
“
“ “HMRC / TREASURY “WEAPONS” TO DATE
When the legislation appeared to permit what g pp pparliament didn’t intend to be possible:
1.
New targeted anti-avoidance legislation to prevent abuse
2.
Assessment/challenge through tribunals/courts (pressing for a “substance
over form” ruling)over form ruling)
GAAR
Applying to:
Income tax Corporation tax CGT PRT IHT SDLT NIC
GAAR
TAX ARRANGEMENTS
+
ABUSIVENESS
+
TAX ADVANTAGES
GAAR
“Tax arrangements”
Is it reasonable to conclude that the obtaining of a tax advantage was the main purpose or one of the main purposes of the arrangements?“ “
GAAR - abusiveness
Tax arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonablecourse of action having regard to all of the g gcircumstances, including:
(a) The relevant tax provisions including
- principles on which provisions based
- policy objectives- policy objectives
- any shortcomings that the arrangements intend to exploit
(b) The substantive results of the arrangements
(c) Any other arrangements of which arrangements form part
For example
Arrangements result in:
GAAR - abusiveness
Taxable income, profit, gains being significantly less than amount for economic purposes
deductions or losses for tax greater than for economic purposes
Transactions or agreement for a value significantly different
GAAR can alter tax consequences if those claimed are manifestly those that would not have been countered by Parliament
RESULT: HIGHLY SUBJECTIVE - CONSIDERABLE UNCERTAINTY
FINANCIAL PLANNING
GAAR should not affect “the centre ground ofGAAR should not affect the centre ground of tax planning”
Opportunities to reinforce to power andOpportunities to reinforce to power and effectiveness of “acceptable” financial planning
IF THE CAP FITS
IF THE CAP FITS
(W.E. 6.4.2013)
Limiting the amount that can be claimed by an individual to
The greater of 25% of income
and
£50,000
Limits apply to year of claim and any earlier year to which the relief claimed is allocated
IF THE CAP FITS
Only reliefs that are used to reduce the yamount of general income subject to tax
and not currently capped.
IF THE CAP FITS
C ht N t ht
Trade loss relief against general income (sideways)
Reliefs that are not excluded
Charitable giving
Reliefs with their own cap (VCT, EIS, ISA, Pension etc)
Caught Not caught
and do not have their own “caps”
( C , S, S , e s o etc)
LIFTING THE LID ON TAX AVOIDANCE SCHEMES
Measures to improve “advance information” available to HMRC about tax avoidance schemes including revising and extending the DOTAS provisions
To ensure that where tax avoidance schemes are identified the public knows about the risk using them.
Tax avoidance represents nearly 14% of th UK t It i l i th t
LIFTING THE LID ON TAX AVOIDANCE SCHEMES
the UK tax gap. It involves using the tax law to gain an advantage that Parliament never intended and frequently involves
contrived, artificial transactions that serve little or no purpose other than to reduce p p
tax liability. And it enables some taxpayers to gain an unfair advantage,
undermining confidence in the tax system.
Tackling tax avoidance:
LIFTING THE LID ON TAX AVOIDANCE SCHEMES
Anti-avoidance strategy (March 2011)
• Preventing avoidance at outset (GAAR as deterrent)
• Detecting it early where it persists (DOTAS)
• Countering it through challenge by HMRC (GAAR)
Improving public information about schemes
LIFTING THE LID ON TAX AVOIDANCE SCHEMES
Greater awareness
Working with representative bodies and tax agents (e.g.. Law Society and SDLT avoidance)
“Naming and shaming”
“Spotlight” and social media
Potential to build on FSA mis-selling rules
WHICH SIDE OF THE LINE?
GAAR
AVO I DAN
Mitigation
Planning
Abuse x
Evasion x
NCE
?
THE KEY TESTS FOR A TAX PLANNING STRATEGY
ACCEPTABLE TAX PLANNING
ABUSIVE/UNACCEPTABLE AVOIDANCE
THHE
LIN
Reasonable response to legislation
Reliant on clear legislation *
Genuine economic consequences
The opposite!
NE
consequences
THE CONUNDRUM
Advisers need to focus on actions/services that l d b
To be effective (and marketable) the tax planning needs to be outside of the GAAR and
Tax planning and tax saving is valued
are valued by consumers
planning needs to be outside of the GAAR and seen as “OK”.
THE OPPORTUNITY
Through informed communication and pro activity:pro-activity:
Explain/summarise/ HMRC/Government anti-avoidance action and why its being taken
Distance “acceptable” financial pplanning anticipated and permitted by legislation from “unacceptable” tax avoidance
CURRENT OPPORTUNITIES TO PLAN FOR
Investors
Parents
Trustees
Pension planners
Business owners
In an acceptable “non-egregious “way…. and taking full account of anti- avoidance and adviser
charging.
Low hanging fruit
-Your
Your future
-You as an asset
class
business as an asset class
-Your family
There is still plenty of opportunity to implement tried and tested strategies
to minimise tax.
Supercharging returns through (acceptable) tax alpha
tax
Performance within your control
“SHOW ME THE MONEY”…
• KEEP MORE
• SAVE MORE
• REALISE MORE
Investors
Opportunities
• Personal allowance maximisation
• Personal allowance “reclamation”
• Age allowance and CB maximisation
• Deferment
• Tax Alpha through intelligent wrapper choice
The benefit of deferment
Change:
50 45% f 6 4 201350-45% from 6. 4. 2013
Opportunity:
Income deferment for investorsIncome deferment for investors
Intelligent wrapper choice
ITS ALL ABOUT “SUITABILITY”
• A high risk that suitability cannot beA high risk that suitability cannot be demonstrated with resulting poor outcomes
• COBS 9.2.1 A firm should take reasonable steps to ensure that a ppersonal recommendation or decision to trade is suitable for its customers
• ..and the “legacy” issue…..
FACTORS AFFECTING “OUTCOMES” IN RELATION TO WRAPPER CHOICE
• Yield
• Interest
• Capital gain
ANDAND
• Investment term
• Amount invested
• Withdrawals
AND
• Fund taxation
• Investor tax rates (current/future)Investor tax rates (current/future)
• Exemptions
AND
• Access
• IHT
• Pension/ISA contribution capacity
THE INVESTOR
• For bigger investments wrapper choice gg ppcan make a big difference
• It’s the “variables” that can affect the outcome
• Consider “wrapper allocation”• Consider wrapper allocation
WRAPPER ALLOCATION
WRAPPER SELECTION DETERMIEND BY VARIABLES ▪
Terms ▪ Yield ▪ Growth ▪ Tax
WRAPPER ALLOCATION
MODEL SEVERAL LIKELY/POSSIBLE COMBINATIONS
OF VARIABLESOF VARIABLES
WRAPPER SELECTION DETERMIEND BY VARIABLES ▪
Terms ▪ Yield ▪ Growth ▪ Tax
WRAPPER ALLOCATION
CONSISTENT WRAPPER OUTCOME:
ONE WRAPPER
MODEL SEVERAL LIKELY/POSSIBLE COMBINATIONS
OF VARIABLESOF VARIABLES
WRAPPER SELECTION DETERMIEND BY VARIABLES ▪
Terms ▪ Yield ▪ Growth ▪ Tax
WRAPPER ALLOCATION
CONSISTENT WRAPPER OUTCOME:
DIFFERENT WRAPPER
OUTCOMES: ONE
WRAPPERWRAPPER
ALLOCATIONS
MODEL SEVERAL LIKELY/POSSIBLE COMBINATIONS
OF VARIABLESOF VARIABLES
WRAPPER SELECTION DETERMIEND BY VARIABLES ▪
Terms ▪ Yield ▪ Growth ▪ Tax
PROTECTION FOR INVESTORS
• Closing the wealth gap
• ISA (IHT) protection
TRUSTS AS INVESTORS
• 50% - 45% income tax rate from 6.4.2013
• Consultation on Relevant Property Regime• Consultation on Relevant Property Regime
TRUSTS
• 50% - 45% income tax rate from 6.4.2013
• Consultation on Relevant Property Regime• Consultation on Relevant Property Regime
Opportunity:
• Trustees treated as additional rate taxpayers for income tax
Use CGT exemption of £5 300• Use CGT exemption of £5,300
• Use tax shelters: SP Bonds
• Collaborate with professional advisers in advising on trustee investments
PENSION DEATH BENEFITS: Planning under new rules
UNCRYSTALLISED:
75
UNCRYSTALLISED: IHT FREE
INCOME TAX FREE55% TRC
• USE “PHASED” TO MINIMISE CRYSTALLISATION + MAXIMISE
• MAXIMISE TFC + GIFT
• MAXIMISE DRAWDOWN (FLEX?) GIFT AS
MAXIMISE UNCRYSTALLISED IHT FREE , OR
• DRAW FROM OTHER
INVESTMENTS
(FLEX?) GIFT AS NORMAL EXPENDITURE
• USE INCOME TO FUND
LIFE COVER IN TRUST
THE PARENT/GRANDPARENT
The challenges … well, two of them!
1 Th i i t f hi h1. The increasing costs of higher education
2. The increasing difficulty of “getting on the property ladder”
Both very high priority/anxiety for many parents/grandparents
THE PARENT/GRANDPARENT
Getting the right “bricks in the wall”
i t tOffshore bond
Collectives
Own ISA?
in trust or assigned
Appropriate trust
+
+
Junior ISA ? control/access
PROTECTION FOR PARENTS
Guaranteeing:
• School fees
• Higher education costs
• First home purchase
SME Owners
Business investment
Tax Deferment
Succession planning
“Exit planning”
INVESTING FOR COMPANIES
Change:
2012: 24% (25%) Marginal rate: 25%( ) g
2013: 23% (24%)
2014: 22% (23%)
Opportunity:
• Income deferment ..but care …access to cash , loan relationship rules / entrepreneurs’ relief
• SME as asset class: “Risk and reward”
LRR
P i t i t d d Precise tax impact depends on company’s accounting practice
Historic cost basis or fair value?
LRR : Post 08 Bond
Historic cost basis
A company that meets the definition of “small” in the Financial Reporting
Standards for Smaller Entities (FRSSE) may prepare its accounts on the historic cost
basis. Two of the following 3 criteria need to be met before a company can apply theto be met before a company can apply the
FRSSE Standards:1.Turnover is £6.5 million or less.
2. Balance Sheet value is £3.26 million or less.3. Average number of employees is 50 or less.
The benefit of deferment
Change:
50 45% f 6 4 201350-45% from 6. 4. 2013
Opportunity:
Income deferment for business ownersIncome deferment for business owners
Succession and “exit”
“MY BUSINESS IS MY PENSION”
• Through sale
• As a Going Concern
Nevertirees“
“Barclays Wealth survey says...
Over sixty per cent of“Over sixty per cent of British millionaires (and this is likely also to apply to SME owners) say they plan never to retire.
§ They are shunning traditional retirement and instead
“
and instead continuing to work, start businesses and take on new projects in their later years
“
Important Unimportant
ADVISER OPPORTUNITY
ent
Urg
ent
No
n u
rge
INHERITANCE TAX
• Nil rate band : £325k until 5.4.15- then CPI increases
• Non Dom spouse exemption to increase
• Charitable legacy provisions; Post 5.4.2012 deaths
(Fi Bill 2012 S h 32 S h 1A IHTA 1984)(Finance Bill 2012 Sch 32: Sch 1A IHTA 1984)
ESTATE PLANNING FOR INVESTORS
And for investors its about making the right choices
(Assuming your joint estate exceeds 2 x NRB)
ADVISER CHARGING AND FINANCIAL PRODUCTS IN TRUST
• Products subject to discretionary gift truststrusts
• Loan trusts
• Discounted gift trusts
ADVISER CHARGES AND TAX IN RELATION TO FINANCIAL PRODUCTS IN TRUST
The basic model
Paid from trust? TRUSTPaid from trust? Poss GWR but
likely “carve out”
Charge for initial
advice
Paid from Paid by
FINANCIAL PRODUCT
CASH ACCOUNT
Possible tax (2)(3)
SettlorNo tax
Paid from own funds:
No tax (VAT?)
Paid by Settlor?
Further gift
(Poss N.EXP)
Charge for ongoing advice
PROTECTION FOR ESTATE PLANNERS
• Meeting the liability to IHT
• Loan trust booster
• DGT booster
RLP
T d d tibl / t bl i Tax deductible /non taxable premium
No impact on AA/LTA
Non (income) taxable sum assured
IHT Freedom (Discretionary Trust) IHT Freedom (Discretionary Trust)
Care : No tax avoidance motive
1. Attention
THE POWER OF PROACTIVITY
2.Interruption
34.Action (Communication)
3.Permission
Relevant Current Frequent
Effective Communication
99 problems...
...But a pitch ain’t one
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CONTACT
www.technicalconnection.co.uk
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Tony Wickenden
tk @t d [email protected]
0207 405 1600