TAX PLANNING 2011 CHANGE = OPPORTUNITY

Transcription

1 Session three, track one: Tax & Financial Planning in a high tax world Tony Wickenden Technical Connection TAX PLANNING 2011 CHANGE = OPPORTUNITY 1

2 These slides and the presentation in which they are used are put forward for general consideration only. 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. 0(e) ;(tel) BACKGROUND: TAXATION The way we were 40% max IT Full personal allowance 18% CGT Avoidance 21% and 28% CT 5m Entrepreneurs' Relief 325K nil rate band The way it is 50% (60%) max IT PA 100k 28% CGT Anti-avoidance 20% and 26% CT 10m Entrepreneurs' Relief 325K nil rate band 2

3 BACKGROUND: RETIREMENT PLANNING The way we were 255k annual allowance No carry forward 1.8m lifetime allowance Benefit 75 USP/ASP IHT on death benefits (post 75) 35% TRC The way it is 50K annual allowance Carry forward 1.5m LTA (2012) No benefit 75 Capped drawdown/ flexible drawdown No IHT on death benefits 55% TRC THE POWER OF PROACTIVITY CLIENTS Served Unserved Unstated NEEDS Stated 3

4 THE POWER OF PROACTIVITY CLIENTS Served Unserved NEEDS Stated Unstated Reacting exaggerated Growth? by events Risk! THE POWER OF PRO-ACTIVITY CLIENTS Served Unserved NEEDS Unstated Stated Proactive exaggerated High margin by events Growth! 4

5 THE POWER OF PRO-ACTIVITY CLIENTS Served Unserved NEEDS Stated Unstated Proactive exaggerated Target by events Growth! Saw this and thought of you... Awareness- To which clients- Simples Mass customised comms Assessing relevance- Interest- Action Respect/trust 5

6 Pro-activity: Sell the problem The challenge! No person or business buys a solution for a problem they don t have. The marketing challenge is to sell the problem! The solution Many won t be willing to embrace that they have a problem until they also believe there s a solution. 99 problems......but a pitch ain t one 6

7 BE A PURPLE COW * Stand out from the rest* (* Seth Godin: Purple Cows) A CLIENT FOCUSSED APPROACH TO PLANNING The investor The parent/grandparent The non-dom The trustee The retirement planner The business owner The estate planner 7

8 SHOW ME THE MONEY KEEP MORE SAVE MORE REALISE MORE Broad brush ESSENTIAL PLANNING FOR INVESTORS Reduce taxable income Maximise reliefs Consider gains over income Maximise tax efficient investments In other words.don t forget the basics 8

9 THE INVESTOR Strategies for couples: ISA maximisation Asset transfers to maximise use of reliefs and allowances THE EARLIER (IN THE TAX YEAR) THE BETTER Bond transfers Transfers CGT/IHT neutral (married couples) 9

10 THE EFFECTIVE RATE OF TAX THE NOMINAL RATE THE POWER OF ADVICE THE EFFECTIVE RATE 50% TAX: FOR HOW MUCH LONGER? Mirlees review for IFS Treasury: + 2.5bn IFS : - 500m? 10

11 You re having a Laff (er) AND IF 50% IS GOING Some planning to consider for those in the zone Maximise i pension contributions ti Delay bond encashments Accelerate qualifying capital expenditure (self employed) Limit drawdown (flex especially) Gift aid Delay dividends/bonus (SME owners) 11

12 BOND ENCASHMENT TRAP Multi policy (segmented) bond REAL GAIN 5% ALLOWANCE BOND ENCASHMENT TRAP Multi policy (segmented) bond REAL GAIN CHARGEABLE GAIN PART ENCASHMENT 5% ALLOWANCE 12

13 THE INVESTOR..And if the 50% rate really is temporary. remember the benefit of deferment Growth/portfolios Income/mixed portfolios TAX FREE REALISATION Dividends 0% Interest 20% Gains?% After CPI from 2012 ANNUAL EXEMPTION/LOWER RATE Withdrawal/ encashment strategies Assignment Top-slicing A DEAR CEO EXTENSION ITS ALL ABOUT SUITABILITY A high risk that suitability cannot be demonstrated with resulting poor outcomes COBS A firm should take reasonable steps to ensure that a personal recommendation or decision to trade is suitable for its customers 13

14 FACTORS AFFECTING OUTCOMES IN RELATION TO WRAPPER CHOICE Yield Interest Capital gain AND Investment term Amount invested Withdrawals AND Fund taxation Investor tax rates (current/future) Exemptions AND Access IHT Pension/ISA contribution capacity THE INVESTOR For bigger investments wrapper choice can make a big difference It s the variables that can affect the outcome Consider wrapper allocation 14

15 THE PARENT/GRANDPARENT The challenges well, two of them! 1. The increasing i costs of higher h education 2. The increasing difficulty of getting on the property ladder Both very high priority/anxiety for many parents/grandparents THE PARENT/GRANDPARENT The education challenge for a newborn 1. Current requirement, say, 40, In 18 3% inflation 68,097 A demanding target! Minimising tax helps 15

16 THE PARENT/GRANDPARENT Getting the right bricks in the wall Offshore bond Collectives Own ISA? Junior ISA + + in trust t or assigned Appropriate trust? control/access THE NON DOM Avoiding the 30, or 50,000 remittance basis charge 16

17 PLANNING FOR THE NEW NON DOM CHARGE As for planning for the 30k charge But more so! OFFSHORE BONDS No change Care if bond funded from unremitted O/shore income and gains Gains assessed on an arising basis GAINS Non-Remit-table No 30k charge INCOME Chargeable event rules UK RES NON DOM + TRUST = Excluded property 17

18 TRUSTEE INVESTMENT AUDIT Challenges Solutions 25%/30% increase income tax UK/Offshore Bonds 55% increase in CGT Growth collectives Trustee Act responsibilities SOME RETIREMENT PLANNING FUNDAMENTALS Build flexibility into retirement plans Plan for uncertainty Maximise reliefs to maximise returns Balance tax effectiveness with utility Plan accumulation and withdrawal holistically and across all wrappers on platform Keep estate preservation in mind 18

19 AND SPECIFICALLY Make the most of carry forward Salary/bonus sacrifice Spousal pensions Maintain uncrystallised benefits pre 75 (no TRC on death benefit) Use post 75 pension funds in estate t planning Be aware of MIR and how flexible drawdown works Consider phased drawdown when appropriate CORE ACCUMULATION UNCERTAINTIES How long will you be working for? How much money will you need? When will you need independent funds? What will tax look like? Will you need access to funds pre- retirement? And if you own a business Will your business be (or contribute towards) your pension? 19

20 THE RULES FOR TAKING BENEFITS Consider (with advice) where best to take benefits from so as to - Minimise tax on amounts taken - Maximise the preserved value of investments - Consider flexible and capped phased drawdown AND DON T FORGET ABOUT ESTATE PRESERVATION 75 Take cash Draw + give Uncrystallised No IHT/No 55% Any pension fund Tax free No IHT 55% tax charge 20

21 PENSION DEATH BENEFITS: Death after 6 April 2011 Income tax Inheritance tax PENSION DEATH BENEFITS: Income Tax Death Age 75 Death 55% * Not crystallised 0% Crystallised 55% * * Special lump sum death benefits charge 21

22 Omission right to exercise PENSION DEATH BENEFITS: Inheritance Tax Pre Post IHT (i) No IHT Death during IHT (ii) No IHT (iii) ASP/drawdown Deceased s estate has IHT (iv) IHT (iv) right to death benefits General P of A IHT (v) IHT (v) (i) Only applicable if member did not expect to live beyond 2 years and dies within that period. Exemption if paid to spouse/dependants. (ii) IHT and authorised scheme charge = 82% total (iii) 55% income tax charge though (iv) Avoid by ensuring trustees/scheme administrator has discretion (v) Essential power to nominate is non-binding. Stick to non-binding letter of wishes PENSION DEATH BENEFITS: Contributions NO IHT IF NO GRATUITOUS INTENT 2 years Death NO IHT ON CONTS IF NO CLEAR EVIDENCE OF INTENT Box 22 (IHT 409) Details of contributions Poss T of V: Annual exemption possible 22

23 PENSION DEATH BENEFITS: Lifetime transfer EG: Transfer into trust Box 16 IHT 409 declaration within 2 years CARE! If member in serious ill health when transfers made PENSION DEATH BENEFITS: Pension transfers EXISTING SCHEME A surrender or rights and new transfer NEW SCHEME Box IHT 409 Declaration IF member dies within 2 years of transfer Generally, ill-health and intention required 23

24 PENSION DEATH BENEFITS: Planning under new rules UNCRYSTALLISED: IHT FREE INCOME TAX FREE USE PHASED TO MINIMISE CRYSTALLISATION + MAXIMISE UNCRYSTALLISED IHT FREE 75 55% TRC MAXIMISE TFC + GIFT MAXIMISE DRAWDOWN (FLEX?) GIFT AS NORMAL EXPENDITURE USE INCOME TO FUND LIFE COVER IN TRUST AND NOW FOR SOMETHING COMPLETELY DIFFERENT? NON-PENSIONS NON PENSIONS RETIREMENT PLANNING 24

25 PENSION IMPEDIMENTS: TAX EFFICENCY Annual allowance: 50K + C/F Lifetime allowance: 1.5m (2012) PENSION IMPEDIMENTS: BENEFIT PREFERENCES What do you really, really want 25

26 Quiz time WHAT WOULD YOU RATHER HAVE? A. 1m in your pension fund or B. 1m Question: HOW LOW CAN YOU GO? WHAT WOULD YOU RATHER HAVE? 1m in your pension fund 800,000 How low would you go? DATA/GENERAL/RETIREMENT Taxplan STRUCTURE

27 RETAIL PENSIONS ALTERNATIVES Collective UK bond O/S bond QSP VCT/EIS - Full access - Use trust for IHT efficiency It is assumed that ISAs maximised SOME NON RETAIL ALTERNATIVES Employee/Family Benefit Trust Employer - Funded Retirement Benefits (EFRBS) Anti Avoidance provisions now apply Private business-build and sell 27

28 PAYMENTS TO OWNER MANAGERS, EXECUTIVES, EMPLOYEES Are you remuneration in disguise..? Are you remuneration in disguise..? DISGUISED REMUNERATION: ANTI AVOIDANCE LEGISLATION THE TARGET. Employers directors and employees who use arrangements Employers, directors and employees who use arrangements involving trusts and other vehicles to avoid, reduce or defer tax on the rewards of employment and to avoid the restriction on pensions tax relief 28

29 THE FUNDAMENTALS An income tax charge when Employer takes relevant steps to provide benefits to an employee Through a third party or intermediary SO, WHAT CONSTITUTES RELEVANT STEPS? Allocation or earmarking of cash, shares, other assets through EBT, EFRBS, other third party from ( ) 10) = income tax + NIC even though no actual payment made until later Payment of money or transfer of asset to an employee (wide definition) Loans made by third parties (eg. trustees) but not loans by employers direct are caught 29

30 EXCLUDED RELEVANT STEPS? Approved share schemes A substantial proportion of employees are genuinely eligible for benefits WHICH MEANS THAT EBTs in conjunction with approved share schemes OK Pre transfers/allocations ti to restricted EBTs/EFRBS not assessed. Post Assessable Transfers to genuinely discretionary EBT/EFRB OK Allocation/earmarking of EBT/EFRBS funds to sub funds for employees Assessable Provision of loans/non-cash benefits from EBT/EFRBS.. Assessable Funding or hedging an unfunded promise (?) 30

31 THE SME OWNER MY BUSINESS IS MY PENSION Through sale As a Going Concern Nevertirees 31

32 Barclays Wealth survey says... 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 continuing to work, start businesses and take on new projects in their later years ADVISER OPPORTUNITY Important Unimportant Urgent Non urge ent 32

33 SELL THE PROBLEM... Retain ownership: reduce / cease involvement and continue to take profits Risk: Opportunity: Continued business profits Financial safety net SELL THE PROBLEM... Pass on ownership: Family / employees and continue to take income Risk: Opportunity: Continued business profits Financial safety net 33

34 SELL THE PROBLEM... Continue working: No plans to sell Risk: Opportunity: Energy / health / profits Diversification: protection SELL THE PROBLEM... Sale: Live on proceeds Risk: Opportunity: Market / available buyers / tax Diversification 34

35 MY BUSINESS IS MY PENSION Strong, growing profits Predictable revenues Non-reliance on owners Scalable products / services Little or no competition Strong brand Innovation Strong client base High value assets Low debt Good cash flow How many are present? Timing Technology Economic cycle Availability of capital Buyers Health Tax Law / Regulation How many are relevant? Critical facts: ESSENTIAL PLANNING FOR ESTATE PLANNERS Nil rate band frozen at 325,000 for 2010/11 until 2014/15 Asset values volatile Return to popularity for nil band trusts? Anti avoidance activity continues The new 36% for 10% rate reduction 35

36 THE ESTATE PLANNER THE 2012 CHARITY INCENTIVE Tom, a widower, has an estate of 1,325,000. He is encouraged by the new relief to leave 100, to his favourite charity, and the remainder of his estate to his son James. If Tom dies on or after 6 April 2012, the IHT liability will be: 1,325, ,000 less NRB 1,000,000 less bequest to charity 100,000 (10% of his net estate) 900,000 less 36% less IHT at 36% 324, ,000 net to James AN ASSET CLASS BASED APPROACH TO ESTATE PLANNING YOUR HOME YOUR BUSINESS YOUR CASH/ INVESTMENTS 36

37 ESTATE PLANNING FOR INVESTORS And for investors its about making the right choices (Assuming your joint estate exceeds 2 x NRB) PROTECTION OPPORTUNITY CONTINUES DISC TRUST PREMIUM Normal Exp Annual POLICY EXIT? First 10 years nil Subsequently unlikely PERIODIC CHARGE 10 years Policy value (SV?) Premiums? Serious ill health 37

38 PROTECTION BIG POLICIES Multiple trusts EVEN THE BAD TIMES ARE GOOD! DATA/GENERAL/TRUSTEE INVESTMENT

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41 SIX OF THE BEST: TECHLINK PROFESSIONAL HELPS YOU.. 1. Reduce risk 2. Secure your SPS through h CPD 3. Justify your "Adviser Charge" and increase margin 4. Generate new business 5. Get case related technical support 6. Save time CONTACT Tony Wickenden tkw@tecconn.demon.co.uk k Tony.wickenden@technicalconnection.co.uk