this presentation is provided to you by zurich intermediary group in your capacity as a financial...
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This presentation is provided to you by Zurich Intermediary Group in your capacity as a financial services industry professional. It must not be made available or copied or otherwise quoted or referred to in whole or in part in any way, including orally, to any person without our express written permission, which we may, at our absolute discretion, grant or withhold or grant subject to conditions, including conditions as to our responsibility.
We accept no duty or responsibility, and we disclaim all liability whether in contract, tort (including negligence) in respect of this material but this sentence does not exclude any liability which by law cannot be excluded.
Important information
For intermediary use only – not for use with your clients
Tax Wrappers & Taxation
– taxation considerations when giving investment advice
Andy Woollon, Dip PFSStrategic Partner Specialist
2For intermediary use only – not for use with your clients
Transfer of risk onto the individual
For intermediary use only – not for use with your clients
4For intermediary use only – not for use with your clients
Mind the gap…..tax matters!
Source: HMRC – Levelling the tax playing field – March 2013
Government investing almost £1bn to increase tax compliance
5For intermediary use only – not for use with your clients
But are clients disclosing investments correctly?
6For intermediary use only – not for use with your clients
Sources of “income”- minimizing tax liability
Borrowed Capital
Incomedeferredliability
Incomeimmediate
liability
E.g. Mortgages /
Loans / Credit cards
E.g. 5% Inv-bonds
/ structured deposits
E.g. OEICs / UTs
E.g. Deposits / Yield
from OEICS / UTs
Tax Free
E.g. ISA
Income lesstax payable
E.g. PAYE income, pension, shares
7For intermediary use only – not for use with your clients
Personal tax computation orderIn
com
e
Ignoring National Insurance and indirect taxes/traps
Personal Allowance / Age Allowance
1st – Non Savings
2nd – Savings
3rd – Investment
e.g. Dividends
4th – Chargeable Event Gains
5th – Capital Gains
8
Discombobulated?
For intermediary use only – not for use with your clients
Learning Outcomes
Knowledge is .…. opportunity
By the end of this session you will be able to explain how:
the taxation of different investment products and funds affects advice to different age and income groups;
the Budget changes to the ISA allowance, other investment options and taxation allowances will impact on investment decisions;
to make effective use of the various tax allowances, whilst avoiding tax traps that can reduce client returns.
For intermediary use only – not for use with your clients
Taxation of tax wrappers & assets
10For intermediary use only – not for use with your clients
11For intermediary use only – not for use with your clients
Wealth and income lifecycle
Nil IncomeNil to Low IncomeModest Income
and Low CapitalAccumulation
High Incomeand Capital
Accumulation
Low to Medium Income* and Wealth
De-accumulation
School
College & tertiary
Career building years
PrimeRetirement &
Estate Planning
Matching assets and tax wrappers
*May have a need for higher income for Care Home fees
TAX
12
Advice process
For intermediary use only – not for use with your clients
13For intermediary use only – not for use with your clients
Fund choice & switching
Tax trapsIncome
withdrawals & CGT
Education funding
Key facts to consider…
Assignment & account designation
Asset type &
performance
Age
Legislation changes
Death & ill health
Self assessment
Admin & online
capability
Customer charges
Customer tax &
investment amount
Adviser charging
Care home fees
planning
IHT planning
& trusts
14For intermediary use only – not for use with your clients
Main tax wrappers
Tax and onshore bonds
20% within fund after
indexation relief and expenses
Pays 0%, 20% or 25% of net
gainNT/SRT no
reclaim
Gains
Within fund, received net of 10% or 20%
tax credit
No further liability
Dividends
Within fund, received net
of 20%
No further liability
Interest/Rent
UK investment bond – fund and investor taxation
INV
ES
TO
R F
UN
D
Tax and authorised investment funds
No taxwithin fund
Pays 18% or 28% on gains
over exemption
Gains
Within fund, received net of 10% or 20%
tax credit
Pays 0%, 22.5%or 27.5%
additional tax
Dividends
Within fund, received net
of 20%
Pays 0%, 20%or 25%
additional taxNT/SRT can
reclaim
Interest/Rent
UK unit trust / OEIC – fund and investor taxation
INV
ES
TO
R F
UN
D
17For intermediary use only – not for use with your clients
Calculating capital gains
Minus current year loss
Deduct Capital Gains Tax Annual Exemption
Elect whether to utilise carry forward losses
= Net taxable gain
Establish current year gain
18For intermediary use only – not for use with your clients
Basic
Rate
In
com
e T
ax
Hig
her
Rate
In
com
e
Tax
Pers
on
al
Allow
an
ce /
Ag
e
Allow
an
ce
Ad
dit
ion
al R
ate
In
com
e
Tax
Taxable Income
Net Gain@ 28%
Higher Rate
Net Gain @ 18% Basic Rate
Basic Rate Tax Threshold
Calculating the CGT rate
Tax and onshore bonds
No taxwithin fund
Pays 0%, 10%, 20%, 40% or 45% of net
gain
Gains
UK dividends received net of 10% tax credit
No further liability
Dividends
No tax, received gross
No further liability
Interest/Rent
Offshore bond – fund and investor taxation
INV
ES
TO
R F
UN
D
20For intermediary use only – not for use with your clients
National Savings
Tax- Free Growth
Limited Amounts
Wrapper allocation
ISA
Tax Efficient Growth
Limited Amounts
Income not Taxed
No Tax in Fund
CGT on disposal
Income Taxed at highest
marginal rate
UK Unit Trust / OEIC
Gross Roll Up
Tax at highest marginal rate
5% a yearTax Deferred
Top-slicing relief
Time Apportionment
Relief
Offshore Bond
Tax Efficient Growth
Limited Amounts
Tax Relief on Contributions
Tax- Free Cash Sum
Income Taxed as Earned Income
Pension
Life Fund Tax in fund
HRT/ART on exit
5% a year Tax Deferred
Top-slicing relief
Onshore Bond
21For intermediary use only – not for use with your clients
Tax efficiency
Personal & Age-related
Allowance
Collectives
Capital Gains exemption
NISA
Investment Bonds
5% Tax-deferred
Wra
pp
er
Savings rate band
Non-Yielding Funds
Fixed Interest / Property
Yielding Funds /
Deposits
Deposits
Fixed Interest Yield
Offshore Bond Gains
Asset
For intermediary use only – not for use with your clients
Handset Question 1
Do you have clients invested in UT/OEIC funds who may not fully understand the taxation implications and risk not fully disclosing all income to HMRC?:
Yes – press 1
No – press 2
Budget 2014 update
23For intermediary use only – not for use with your clients
The New ISA (NISA)
JISA and CTF for under 16’s – stocks & shares or cash – up to £4,000
NISA for 16-18 year olds – cash only – up to £15,000
For intermediary use only – not for use with your clients
NISAs – extra appeal?
Increased flexibility on transfer:Cash to Stocks & Shares and vice versaSwitch within the existing wrapper
Extension of eligible assets:
Starting / Basic rate taxpayers
Higher / Additional rate taxpayers
Tax traps – Age/Personal allowance, Child Benefit
NISA vs Pension alternative?
For intermediary use only – not for use with your clients
Allowance and taxation changes6/4/2013 6/4/2014 6/4/201
5
Personal allowance £9,440 £10,000 £10,500
Starting rate band at 10%
£2,720 £2,880 -
Starting rate band at 0%
- - £5,000Basic rate tax band £32,010 £31,865 £31,785
Higher rate tax threshold
£41,450 £41,865 £42,285
Annual CGT exemption £10,900 £11,000 £11,100
Age-related allowance <75
£10,500 £10,500 £10,500
Age-related allowance >75
£10,660 £10,660 £10,660
Age-related income limit
£26,100 £27,000 TBC
Source: HMRC
New 0% starting rate for savings income from 6th April 2015
Starting rate band for savings income increases to £5,000
Band reduces proportionately for any non-savings income above personal allowance, as per current practice
No tax payable if non-savings and savings income is less than £15,500
Savings income = deposits, fixed interest yield and offshore bond gains
Potentially beneficial for pensioners with savings or income from fixed interest funds, and investors with gains from offshore bonds
Starting rate for savings income
Starting rate for savings income
Example – from April 2015 – Sheila age 60
Part-time job at DIY store £12,000Personal allowance £10,500Taxed at 20% on £1,500
Deposit interest of £400 net (£500 gross)(£25,000 * 2%)
Total gross income £12,500
Total income is below £15,500 (personal allowance + starting rate band)
Can apply for tax-free savings with form R85
Source: HM Treasury fact sheet - Abolishing the 10% rate of tax on savings income
Starting rate for savings income
Example – from April 2015 – Derek age 60
Pension £14,000Personal allowance £10,500Taxed at 20% on £3,500
Fixed Interest yield of £2,000 net (£2,500 gross)(£62,500 * 4%)
Total gross income £16,500
Total income is above £15,500 (personal allowance + starting rate band)
Cannot apply for tax-free savings – but can claim back the tax on £1,500 of the Fixed Interest yield with form R40
Source: HM Treasury fact sheet - Abolishing the 10% rate of tax on savings income
Starting rate for savings income
Example – from April 2015 – Ronald age 75
Pension £10,000Personal allowance £10,500No tax is due
Offshore bond gains of £5,500 gross(£55,000 gain / 10 years)
Total gross income £15,500
Total income is below £15,500 (personal allowance + starting rate band)
No tax payable on offshore bond encashment
Source: HM Treasury fact sheet - Abolishing the 10% rate of tax on savings income
Mind the tax traps!
31For intermediary use only – not for use with your clients
The tax traps
Ag
e A
llo
wa
nc
e
Ch
ild
Ben
efit
Per
son
al A
llo
wan
ce
0
70
60
50
40
30
20
10
0 10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,00
0
110,00
0
120,00
0
130,00
0
140,00
0
150,00
0
160,00
0E
ffec
tive
rate
of
tax
%
Income £
Hig
he
r R
ate
Ta
x
Adjusted Net Income
Earned income
Savings / Investment income
Pension / Trust income
Chargeable gains (full gain)
Gift aid payments
Less
Pension contributions (gross)
Trading losses
= Adjusted Net Income
34For intermediary use only – not for use with your clients
Age allowance trap – 2014/15
£17,500
£10,000
£10,000 personal allowance only, as
£500 of 65-74 age allowance lost on
a 2-for-1 basis on income over
£27,000
Basic rate tax @20% = £3,600
£1,000 30%
Marginal Rate
£27,00
0
income
limit
For intermediary use only – not for use with your clients
£500
Personal allowance tax trap – 2014/15
60%effective
taxrate
Tax year 2013/14
£100,000
£118,880 60%effective
taxrate
Tax year 2015/16
£121,000
£ 100,000
60%effective
taxrate
Tax year 2014/15
£120,000
£100,000
For each £2 of adjusted net income over £100,000 the personal allowance reduces by £1
Personal allowance tax trap – 2014/15Client with £120,000 adjusted net income
Make a £20,000 gross pension contribution
£10,000invested
Income over limit £20,000
Income taxed @ 40%
= £8,000 tax
Lost personal allowance £10,000
Lost allowance taxed @ 40%
= £4,000 tax
Amount in bank
= £8,000 = £20,000Amount in pension
OR
Reduction in bank £8,000 60%
tax
37For intermediary use only – not for use with your clients
Higher rate tax threshold trap
1.1 million extra higher rate taxpayers*
Source: HMRC and IFS*
£10,000
£10,000
£10,000
£10,000
Child Benefit tax trap – 2014/15
Bank
Bank
Bank
Bank
Income Tax 40%
£4,000
Income Tax 40%
£4,000
Income Tax 40%
£4,000
Income Tax 40%
£4,000£10,000
£10,000
£10,000
£10,000
£6,000
£6,000
£6,000
£6,000
£2,820
£3,525
£4,934
£4,229
Child Benefit tax charge£2,475.20
Child Benefit tax charge£1,770.60
Child Benefit tax charge£1,066.00
Child Benefit tax charge£3,179.40
£50,000 £60,000
For each £100 of adjusted net income over £50,000 the child benefit reduces by 1%
Client with £60,000 adjusted net income
Make a £10,000 gross pension contribution
£10,000invested
Income over limit £10,000
Income taxed @ 40%
= £4,000 tax
Lost child benefit(2 kids) £1,770.60
Lost child benefit
= £1,770.60
Amount in bank
= £4,229.40 = £10,000Amount in pension
OR
Reduction in bank £4,248
57.70%
tax
57.70
%TAX
RELIEF
Child Benefit tax trap – 2014/15
40For intermediary use only – not for use with your clients
Maximising use of allowances
How much could an individual invest at 4%pa net, and by only using their 2015/16 personal allowance, starting rate band for savings income, NISA and annual CGT exemption, not pay any Income Tax?
1. £117,500
2. £217,500
3. £317,500
4. £417,500
Approximately £417,500
Fully utilised allowances can be valuableAllowance type & amount in 2015/16
Equivalent investment amount (@4% net return*)
Income Tax payable
Personal allowance £10,500
Nil – assumed offsets pension income
Nil
0% savings rate band £5,000 £125,000* Nil
NISA allowance £15,000
£15,000 Nil
Annual CGT exemption
£11,100
£277,500*(in zero yielding funds)
Nil(and no CGT)
Total =
£417,500 NILOther sources of untaxed ‘income’ may include existing ISAs and tax-deferred withdrawals from investment bonds
42For intermediary use only – not for use with your clients
Platforms can facilitate use of multiple wrappers
InvestmentBond
Other
Investment Account
Pension Funding
Pension Income
PLATFORM
ISA
43For intermediary use only – not for use with your clients
Treating Customers Fairly
Consumers do not face unreasonable post-sale barriers imposed by firms to change products, switch provider, submit a claim or make a complaint.
Consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard as they have been led to expect.
Where consumers received advice, the advice is suitable and takes into account their circumstances.
Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
Products and services marketed and sold are designed to meet the needs of identified consumer groups and are targeted accordingly.
Consumers can be confident that they are dealing with firms where fair treatment of customers is central to the corporate culture.
Outcome 6
Outcome 5
Outcome 4
Outcome 3
Outcome 2
Outcome 1
For intermediary use only – not for use with your clients
Handset Question 2
Do you have any of the following client types that may benefit from further advice around allowances and taxation:
older individuals looking to fully utilise their allowances;those investing into income-producing funds, but not doing a tax return;high earners potentially caught by tax traps;clients expecting their tax rate to reduce in future;those already fully using their annual CGT exemption.
Yes – press 1
No – press 2
45
Next steps
Visit: www.zurichintermediary.co.uk
Call: Technical Support Team on 0870 6092178
Review and segment your clients:Those who are older and/or have depositsActively use their ISA allowanceBy income levels or tax/trap thresholdsHRT who don’t want to lose child benefit
Contact your Zurich Partnership Development consultant for:Details of our Platform and associated funds and featuresDetails of our range of Adviser ToolsSterling Flexible Bond information
For intermediary use only – not for use with your clients
Handset Question 3
Would you like a Zurich Partnership Development Consultant to contact you regarding the support available?
Yes – press 1
No – press 2
Thank you for listening
.
Zurich Intermediary Group Limited. Registered in England and Wales under company number 01909111 Registered Office:The Grange, Bishops Cleeve,
Cheltenham, GL52 8XX. Telephone no. 0500 546 546.
We may monitor or record calls to improve service.
For use by professional financial advisers only. No other person should rely on, or act on any information in this advertisement when making an investment decision. This advertisement has not been approved for use
with clients.
Important informationAny tax and legislation information is based on Zurich’s current
understanding and may change in the future