For clients. Finances fit for the future. Welcome - Balmer Lawn Hotel. Autumn Professional investment partners

Transcription

1 For clients Finances fit for the future Welcome - Balmer Lawn Hotel Autumn 2017 Professional investment partners

2 Agenda Finances fit for the future 10:00 Registration 10:30 Jam today: what you can do now to make your personal tax planning as efficient as possible Julian Smith / Victoria Christopher, PFK Francis Clark 11:00 More legacy, less liability: inheritance tax reliefs and exemptions that can increase your legacy Jessica Wilshire, Blake Morgan 11:30 Bringing it all together: how Thesis can help you today to achieve your financial goals tomorrow Giles Marriage, Thesis Asset Management 12:00 Q&A and Lunch 13:00 Close 2

3 Tax Planning Efficiency Victoria Christopher October 2017

4 Tax efficiency what to look out for? Allowances Rates Reliefs Succession planning pkf-francisclark.co.uk

5 Income Tax rates and allowances (1) Tax band Non-savings Savings Dividends* 0-33,500 20% 20%** 7.5%*** 33,501-40% 40% 32.5% 150, , % 45% 38.1% *Notional 10% tax credit abolished 1 April 2017 **Subject to savings starting rate and personal savings allowance ***Subject to dividend allowance pkf-francisclark.co.uk

6 Income Tax rates and allowances (2) Personal allowance Currently 11,500. BUT lose it if taxable income exceeds 100,000 1 for every 2 over Marriage allowance pkf-francisclark.co.uk

7 Income Tax rates and allowances (3) Savings starting rate 5,000 at 0% up to prescribed limit Personal savings allowance Basic rate taxpayers- 1,000 Higher rate taxpayers Dividend allowance Currently 5,000 - reducing to 2,000 from 5 April 2018 Interaction with tax bands pkf-francisclark.co.uk

8 Example 1- IT allowances James receives pension income of 10,000, 6,000 gross bank interest and gross dividends of 1,250 in 2017/18. Income tax payable as follows: Non-savings ( ) Savings ( ) Dividends ( ) Pension 10,000 Interest 6,000 Dividends 1,250 Personal allowance -10,000-1,500 Taxable income 0 4,500 1,250 4,500 at 0% (savings starting rate) 0 1,250 at 0% (dividend allowance) 0 Tax payable pkf-francisclark.co.uk

9 Example 2 IT allowances Georgie receives pension income of 35,000, 3,000 gross bank interest and gross dividends of 6,000 in 2017/18. Income tax payable as follows: Non-savings ( ) Savings ( ) Dividends ( ) Pension 40,000 Interest 3,000 Dividends 6,000 Personal allowance -11,500 Taxable income 28,500 3,000 6,000 Tax at 20% 5,700 Tax at 0% (Personal savings allowance)* 0 Tax at 20% 500 * HR taxpayer = 500 PSA and no savings starting allowance ** 5,000 dividend allowance eats up remaining BRB and pushes residue dividends subject to HR income tax Tax at 0% 0 Tax at 32.5%** 325 Tax payable 5, pkf-francisclark.co.uk

10 Income Tax rates and allowances (4) Transfer of income streams between spouses Utilise lower earning spouse s personal allowance, basic rate tax band and/or other unused allowances No gain no loss transfers CGT neutral IHT exempt transfers UK domicile Transfer to adult children during lifetime to use their allowances and tax bands? Watch out for immediate CGT PET IHT if death within 7 years of gift pkf-francisclark.co.uk

11 Capital Gains Tax rates and reliefs (1). Assets other than UK residential property interests UK residential property interests Basic rate 10% 18% Higher rate 20% 28% Additional rate 20% 28% Annual exemption use it or lose it Meaning of residential property interest Land that has at any time during the relevant ownership period consisted of in included a dwelling; or an interest in land which subsists for the benefit of land that has at any time in the relevant ownership period consisted of or included a dwelling. Be careful! pkf-francisclark.co.uk

12 Capital gains tax rates and reliefs (2) Principal Private Residence relief Periods of actual occupation Deemed periods of occupation Last 18 months Lettings relief Gift relief Qualifying assets Gift into trust chargeable to IHT Gain deferral pkf-francisclark.co.uk

13 Capital gains tax rates and reliefs (3) EIS deferral relief Postponement of capital gains tax 30% IT reducer Qualifying investment 3 years before and 1 year after investment SEIS reinvestment relief 50% tax reducer 50% exemption for gains reinvested Planning opportunities? pkf-francisclark.co.uk

14 Inheritance Tax reliefs (1) Business property relief (BR) Relief from IHT on transfer of relevant business property. 100% relief for unquoted shares, sole businesses and partnership interests 50% relief in other qualifying circumstances Agricultural property relief (APR) Relief from IHT on transfer of agricultural property Two rates of relief 100% and 50% Takes priority over business property relief pkf-francisclark.co.uk

15 Trusts (1) Lifetime succession planning - retain control and protection Management and control. Trustees Settlor Trust Settles property, no benefit from trust assets Beneficiaries Beneficial entitlement pkf-francisclark.co.uk

16 Trusts (2) Tax implications for setting up a trust: Settlor: Potential disposal for CGT purposes = potential tax liability for transferor Holdover relief available - joint election Immediate IHT charge at 20% on transfers in excess of available nil rate band Additional charge to IHT if the donor should die within 7 years of the date of transfer. Taper relief where there are more than 3 years between the date of gift and date of death. Trustees: Trustees subject to IT and CGT higher rates 10 yearly charges and exit charges for IHT pkf-francisclark.co.uk

17 Family Investment Companies (1) Historically, investment companies subject to higher rates of corporation tax. No longer applies Subject to future changes in legislation Proven track record - investment companies work! Alternative to traditional trust structure Flexibility, control and asset protection Estate planning benefits pkf-francisclark.co.uk

18 Family Investment Companies (2) pkf-francisclark.co.uk

19 Family Investment Companies (3) Shareholders (e.g. parents, children and grandchildren) Dividends Family Investment company Shares Transfer cash or income producing assets in return for loan of 1m Lenders (e.g. parents) Loan repayment of 1m From post tax profits pkf-francisclark.co.uk

20 Family Investment Companies (4) Gift of shares from outset - No IHT consequence if no value Asset transferred to company CGT, SDLT? Loan account - frozen asset value - spend it! Gift of loan account - Potentially exempt transfer -7 year clock Growth in asset value outside estate for IHT purposes No BPR on shares investment v trade BUT do nothing = 40% IHT on value of personally owned properties. pkf-francisclark.co.uk

21 Example 3 Family Investment Companies In 2017, Dad loans 1 million to company 2 adult children as shareholders 50 ord. shares each Children and Dad as directors Company invests cash in share portfolio pkf-francisclark.co.uk

22 Example 3 (cont.) Annual post tax profits 50,000 Annual loan repayment to Dad of 50, years later, company is worth 1.25m 250k increase in value with children (outside of Dad s estate) = IHT saving of 100k Outstanding balance of loan account ( 500k) in Dad s estate only (assuming Dad is spending his repayments!) pkf-francisclark.co.uk

23 Action points 1. Maximise annual tax allowances 2. Mitigate income tax and capital gains tax exposure at the higher rates spousal transfers lifetime gifts 3. Inheritance tax reliefs asset conversion Maintain relief entitlement 4. Succession planning Trusts v FIC Get advice! pkf-francisclark.co.uk

24 Disclaimer & copyright (c) copyright PKF Francis Clark, 2016 You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by PKF Francis Clark in any format whatsoever unless you have obtained prior written consent from PKF Francis Clark to do so and entered into a licence. To the maximum extent permitted by applicable law PKF Francis Clark excludes all representations, warranties and conditions (including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by PKF Francis Clark. These materials and /or any services provided by PKF Francis Clark are designed solely for the benefit of delegates of PKF Francis Clark. The content of these materials and / or any services provided by PKF Francis Clark does not constitute advice and whilst PKF Francis Clark endeavours to ensure that the materials and / or any services provided by PKF Francis Clark are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by PKF Francis Clark; nor do we commit to ensuring that these materials and / or any services provided by PKF Francis Clark are up-to-date or error or omission-free. Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations on the re-use of Crown copyright extracts in England and Wales. These materials and / or any services provided by PKF Francis Clark are subject to our terms and conditions of business as amended from time to time, a copy of which is available on request. Our liability is limited and to the maximum extent permitted under applicable law PKF Francis Clark will not be liable for any direct, indirect or consequential loss or damage arising in connection with these materials and / or any services provided by PKF Francis Clark, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other liability is not excluded or limited. PKF Francis Clark is a trading name of Francis Clark LLP. Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered number OC The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for inspection and at The term Partner is used to refer to a member of Francis Clark LLP or to an employee. Registered to carry on audit work in the UK and Ireland, regulated for a range of investment business activities and licensed to carry out reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England and Wales. Partners acting as insolvency practitioners are licensed in the UK by the Institute of Chartered Accountants in England and Wales. A partner appointed as Administrator or Administrative Receiver acts only as agent of the insolvent entity and without personal liability. Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. pkf-francisclark.co.uk

25 More Legacy, Less Liability Presented by: Jessica Wiltshire Legal Director Blake Morgan LLP 25

26 Lifetime transfers: Inheritance Tax * Chargeable lifetime transfers * Potentially exempt transfers * 7 years survivorship period * Taper relief Lifetime exemptions and reliefs: * List in supporting pack * Focus on greatly under used exemption normal expenditure out of income Three criteria: * Normal expenditure * Made out of income * Not adversely affect your standard of living 26

27 Impact of the Transferable Nil Rate Band (TNRB) Simplicity at a cost Simplicity of leaving everything to survivor covered by spouse exemption and still take advantage of two nil rate bands Impact on drafting of Wills Discretionary trusts * Asset protection * Inheritance tax efficiency Life Interest trusts - Multiple and separate trusts and long-term tax advantages - Capture transferable allowances with widow/widower who remarries - Property Fragmentation - Securing Business Property Relief & Agricultural Property Relief * Second marriage protect capital for children of earlier marriage * Shield capital against nursing fees 27

28 Impact of the Residence Nil Rate Band (RNRB) What is it? Requirements * Delivery of long awaited 1 million IHT allowance for husband or wife/civil partners - Qualifying residential interest - Closely inherited - Larger estates Deeds of Variation 28

29 Gifts of Second Properties Scenario:- The holiday home in Cornwall that still enjoyed for periods by the family that has dramatically increased in value in recent years. * Reservation of benefit for Inheritance Tax * Asset protection control as trustee * Capital Gains Tax hold-over election * Fragmentation co-ownership discount * Renewed nil rate band each 7 years 29

30 Lifetime Discretionary Trusts Assisting children and grandchildren onto property ladder Asset protection Avoid 3% additional Stamp Duty Land Tax (SDLT) Taking advantage of the Normal expenditure out of income exemption Providing for cohabitees 30

31 For clients Finances fit for the future Bringing it all together: how Thesis can help you today to achieve your financial goals tomorrow Autumn 2017 Professional investment partners

32 Key messages Finances fit for the future Investment update Returns over time Understanding goals Creating a plan Case studies 32

33 A wall of fear Worrying times? Source: memegenartor.net 33

34 Don t believe the hype Perhaps just turn it off! Source: Cartoonstock, Cartoon Movement 34

35 No one can predict the future But we can help you plan for it Source: richtopia.com 35

36 What do we know Investing to beat inflation (%) Source: Barclays Research Equity Gilt Study

37 The longer the better Equity performance Source: Barclays Research Equity Gilt Study

38 Current strategy Thesis stance Source: leadtohedge.com 38

39 So back to the long term What goals do you have? Source: Antoine de Saint Exupéry 39

40 What do you ask us? Some common themes When can I retire? Will my monies keep pace with inflation? Do we have sufficient to cover long term care? How can we best help our children get on the property ladder? Can we assist with educating the next generation savings for grandchildren? What about IHT?! We ve not updated our wills and don t have Lasting Powers of Attorney Can you help my family when I m gone? 40

41 How much risk do you need to take? Need for risk and attitude to risk are two different things Source: keithwebb.com 41

42 Case studies Two scenarios 1. Making gifts from excess income 2. IHT planning and funding long term care 42

43 Current situation Mr & Mrs A Assets Description Starting amount Net investment return Real return rate Default tax rate Current account 150, % -1.5% 0% Joint Thesis Portfolio 300,000 Variable Variable 0% Mr A s ISA 100,000 Variable Variable 0% Mrs A s ISA 100,000 Variable Variable 0% Main Residence 1,000,000 3% 1% 0% Income Starting age Ending age Description Amount Inflation rate Consultancy income (5 Years) 40,000 2% Pension income 25,000 2% Mr A s state pension 160 per week 2% Mrs A s state pension 160 per week 2% Expenditure Starting age Ending age Description Amount Inflation rate Expenditure 45,000 2% Source: Thesis Asset Management plc, Cashcalc 43

44 Current situation Savings over time Source: Thesis Asset Management plc, Cashcalc - forecast 44

45 Scenario 1 Making gifts from excess income A gift will benefit from the normal expenditure out of income exemption if three statutory conditions are all satisfied, as set out in IHTA 1984, s 21(1) In simple words the expenditure must: be part of the donor s typical or habitual expenditure; be made out of income although allowing some carrying over of income and expenditure from one year to another; and allow the donor to maintain their usual standard of living without drawing on capital reserves Source: Thesis Asset Management plc, HMRC 45

46 Scenario 1 Making gifts from excess income Year Age Savings at year start Total income Total expenditure Total withdrawals Income surplus/deficit ,650,000 65,000 45, , ,707,300 65,000 45, , ,807,178 65,000 45, , ,863,106 65,000 45, , ,856,503 65,000 45, , ,770,379 25,000 45, ,000 Source: Thesis Asset Management plc, Cashcalc - forecast 46

47 Scenario 2 IHT planning and funding long term care 650,000 distributed to reduce IHT at 75 Husband requires care at 80, whilst wife remains at the family home Expenditure rises to 90,000 per annum At 85 wife also requires residential care Annual expenditure rises to 120,000 Worst case scenario a double care requirement! House sold at 86, realising capital Proceeds invested into a low/moderate risk portfolio Source: Thesis Asset Management plc Case studies 47

48 Scenario 2 IHT planning various options Outright gifts Discretionary trusts + Thesis AIM portfolio service Business Relief - hold shares for 2 years to qualify for full IHT relief Maintain full ownership, control and benefits of the assets Ability to hold investment in ISA wrappers High level of investment risk Source: Thesis Asset Management plc Case studies 48

49 Scenario 2 Outcomes IHT planning and funding long term care Source: Thesis Asset Management plc, Cashcalc - forecast 49

50 Conclusions Finances fit for the future Don t focus on short term movements But do consider what you might need in the near term Question what you are really seeking to achieve in the longer term Share any concerns with your Thesis wealth manager We can help create a plan for you, working with other advisers Think through risk in all its forms Separate pots and strategies for different goals Each year we can review and update your plan 50

51 Questions? 51

52 Chichester (Head Office) Exchange Building, St John s Street, Chichester, West Sussex PO19 1UP Tel: Fax: Brighton Pacific House, 126 Dyke Road, Brighton, East Sussex BN1 3TE Tel: Fax: Guildford 84 North Street, Guildford, Surrey GU1 4AU Tel: Fax: Lymington Solent House, Cannon Street, Lymington SO41 9BR Tel: Fax: Thesis Asset Management plc is authorised and regulated by the Financial Conduct Authority. Investors should be aware that the value of their investments and the income from them can fall as well as rise and they may not receive back the full amount they invest. Past performance is not a guide to future performance. Investments denominated in foreign currencies are subject to fluctuations in exchange rates which can be favourable or unfavourable. TAM1710_06