Important information
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.
For intermediary use only – not for use with your clients
Tax Wrappers & Taxation
– taxation considerations when giving
investment advice
Andy Woollon, Dip PFS
Strategic Partner Specialist
For intermediary use only – not for use with your clients
2
Transfer of risk onto the individual
For intermediary use only – not for use with your clients
Mind the gap…..tax matters!
Government investing almost £1bn to increase tax compliance
Source: HMRC – Levelling the tax playing field – March 2013
For intermediary use only – not for use with your clients
4
But are clients disclosing investments correctly?
For intermediary use only – not for use with your clients
5
Sources of “income”- minimizing tax liability
E.g. Mortgages /
E.g. OEICs / UTs
Loans / Credit cards
Borrowed
E.g. 5% Inv-bonds
/ structured deposits
Income
deferred
liability
Capital
Income
immediate
liability
E.g. Deposits / Yield
from OEICS / UTs
Tax Free
E.g. ISA
Income less
tax payable
E.g. PAYE income,
pension, shares
For intermediary use only – not for use with your clients
6
Personal tax computation order
Income
5th – Capital Gains
4th – Chargeable
Event Gains
3rd – Investment
e.g. Dividends
2nd – Savings
Ignoring National Insurance
and indirect taxes/traps
1st – Non Savings
Personal Allowance /
Age Allowance
For intermediary use only – not for use with your clients
7
Discombobulated?
For intermediary use only – not for use with your clients
8
Learning Outcomes
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.
Knowledge is .…. opportunity
For intermediary use only – not for use with your clients
Taxation of tax wrappers & assets
For intermediary use only – not for use with your clients
10
Wealth and income lifecycle
Schoo
l
Nil Income
College & tertiary Career building years
Nil to Low Income
Modest Income
and Low Capital
Accumulation
Prime
Retirement &
Estate Planning
High Income
and Capital
Accumulation
Low to Medium
Income* and Wealth
De-accumulation
*May have a need for higher income for Care Home fees
Matching assets and tax wrappers
For intermediary use only – not for use with your clients
11
Advice process
Clear picture of
current position
Future
relationship
strategy
Report of
solutions advised
and actions taken
Understanding of
current value and
worth
T
A
X
Implement
solutions
Tax wrapper
selection?
Establishing long
term goals
Strategy plan
For intermediary use only – not for use with your clients
12
Key facts to consider…
Fund choice
& switching
Assignment
& account
designation
Education
funding
Legislation
changes
Tax traps
Asset type &
performance
Income
withdrawals
& CGT
Age
Death &
ill health
Customer tax
& investment
amount
Customer
charges
IHT planning
& trusts
Self
assessment
Adviser
charging
Admin &
online
capability
Care home
fees planning
For intermediary use only – not for use with your clients
13
Main tax wrappers
For intermediary use only – not for use with your clients
14
Tax and onshore bonds
Gains
Dividends
Interest/Rent
FUND
20% within fund
after indexation
relief and
expenses
Within fund,
received net of
10% or 20%
tax credit
Within fund,
received net
of 20%
INVESTOR
UK investment bond – fund and investor taxation
Pays 0%, 20% or
25% of net gain
NT/SRT no
reclaim
No further liability
No further liability
Tax and authorised investment funds
Gains
Dividends
Interest/Rent
FUND
No tax
within fund
Within fund,
received net of
10% or 20%
tax credit
Within fund,
received net
of 20%
INVESTOR
UK unit trust / OEIC – fund and investor taxation
Pays 18% or
28% on gains
over exemption
Pays 0%, 22.5%
or 27.5%
additional tax
Pays 0%, 20%
or 25%
additional tax
NT/SRT can
reclaim
Calculating capital gains
Establish current year gain
Minus current year loss
Deduct Capital Gains Tax Annual Exemption
Elect whether to utilise carry forward losses
= Net taxable gain
For intermediary use only – not for use with your clients
17
Higher Rate
Income Tax
Additional
Rate
Income Tax
Calculating the CGT rate
Net Gain
@ 28%
Higher Rate
Personal
Allowance
/ Age
Allowance
Basic Rate
Income Tax
Basic Rate Tax Threshold
Net Gain @
18% Basic Rate
Taxable Income
For intermediary use only – not for use with your clients
18
Tax and onshore bonds
Gains
Dividends
Interest/Rent
FUND
No tax
within fund
UK dividends
received net of
10% tax credit
No tax,
received gross
INVESTOR
Offshore bond – fund and investor taxation
Pays 0%, 10%,
20%, 40% or
45% of net gain
No further liability
No further liability
Wrapper allocation
National
Savings
ISA
Pension
Onshore
Bond
Tax- Free
Growth
Tax Efficient
Growth
Tax Efficient
Growth
Life Fund Tax in
fund
Limited
Amounts
Limited
Amounts
Limited
Amounts
HRT/ART on
exit
Income not
Taxed
Tax Relief on
Contributions
5% a year
Tax Deferred
Tax- Free Cash
Sum
Top-slicing
relief
Income Taxed
as Earned
Income
Offshore
Bond
UK Unit
Trust /
OEIC
Gross Roll Up
No Tax in Fund
Tax at highest
marginal rate
CGT on
disposal
5% a year
Tax Deferred
Income Taxed
at highest
marginal rate
Top-slicing relief
Time
Apportionment
Relief
For intermediary use only – not for use with your clients
20
Investment Bonds
Yielding Funds /
5% Tax-deferred
Deposits
Collectives
Non-Yielding Funds
Capital Gains exemption
NISA
Savings rate band
Personal & Age-related
Allowance
Fixed Interest / Property
Asset
Wrapper
Tax efficiency
Deposits
Fixed Interest Yield
Offshore Bond Gains
For intermediary use only – not for use with your clients
21
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
For intermediary use only – not for use with your clients
Budget 2014 update
For intermediary use only – not for use with your clients
23
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 versa
Switch 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 changes
6/4/2013
6/4/2014
6/4/2015
Personal allowance
Age-related allowance <75
£9,440
£10,500
£10,000
£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
Starting rate band at 10%
£2,720
£2,880
-
Starting rate band at 0%
-
-
£5,000
Basic 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
Source: HMRC
Starting rate for savings income
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
Example – from April 2015 – Sheila age 60
Part-time job at DIY store
Personal allowance
Taxed at 20% on
£12,000
£10,500
£1,500
Deposit interest of £400 net
(£25,000 * 2%)
(£500 gross)
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
Personal allowance
Taxed at 20% on
£14,000
£10,500
£3,500
Fixed Interest yield of £2,000 net
(£62,500 * 4%)
Total gross income
(£2,500 gross)
£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
Personal allowance
No tax is due
£10,000
£10,500
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!
For intermediary use only – not for use with your clients
31
Personal Allowance
Child Benefit
Higher Rate Tax
Age Allowance
60
50
40
30
20
10
Effective rate of tax %
The tax traps
70
0
160,000
150,000
140,000
130,000
120,000
110,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Income £
Adjusted Net Income
Earned income
Savings / Investment income
Pension / Trust income
Chargeable gains (full gain)
Less
Gift aid payments
Pension contributions (gross)
Trading losses
= Adjusted
Net Income
Age allowance trap – 2014/15
30%
£1,000
Marginal Rate
£17,500
Basic rate tax @20% = £3,600
£27,000
income
limit
£10,000 personal allowance only, as
£500
£10,000
£500 of 65-74 age allowance lost on a 2for-1 basis on income over £27,000
For intermediary use only – not for use with your clients
34
Personal allowance tax trap – 2014/15
For each £2 of adjusted net income over £100,000 the personal allowance reduces by £1
£121,000
£120,000
£118,880
60%
effective
tax
rate
£100,000
£ 100,000
£100,000
Tax year
2013/14
60%
effective
tax
rate
60%
effective
tax
rate
Tax year
2014/15
Tax year
2015/16
Personal allowance tax trap – 2014/15
Client with £120,000 adjusted net income
OR
Income over
limit £20,000
Lost personal
allowance £10,000
Make a £20,000 gross
pension contribution
Income taxed
@ 40%
Lost allowance
taxed @ 40%
£10,000
invested in
Reduction
= £4,000 tax
bank £8,000
= £8,000 tax
60%
tax
Amount in bank
Amount in pension
= £8,000
= £20,000
Higher rate tax threshold trap
1.1 million extra higher
rate taxpayers*
Source: HMRC and IFS*
For intermediary use only – not for use with your clients
37
Child Benefit tax trap – 2014/15
For each £100 of adjusted net income over £50,000 the child benefit reduces by 1%
Income Tax
40%
£4,000
Income Tax
40%
£4,000
Income Tax
40%
£4,000
Income Tax
40%
£4,000
£50,000
Child Benefit
tax charge
£1,066.00
Child Benefit
tax charge
£1,770.60
Child Benefit
tax charge
£2,475.20
Child Benefit
tax charge
£3,179.40
Bank
£10,000
£4,934
£10,000
£6,000
Bank
£10,000
£6,000
£4,229
£10,000
Bank
£10,000
£6,000
£3,525
£10,000
Bank
£10,000
£60,000
£10,000
£6,000
£2,820
Child Benefit tax trap – 2014/15
Client with £60,000 adjusted net income
OR
Income over
limit £10,000
Lost child benefit
(2 kids) £1,770.60
Make a £10,000 gross
pension contribution
Income taxed
@ 40%
Lost child
benefit
£10,000
invested in
Reduction
= £1,770.60
bank £4,248
= £4,000 tax
57.70%
tax
Amount in bank
Amount in pension
= £4,229.40
= £10,000
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
For intermediary use only – not for use with your clients
40
Fully utilised allowances can be
valuable
Allowance type & amount in
Equivalent investment
2015/16
amount
return*)
(@4% net
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
NIL
Other sources of untaxed ‘income’ may include existing ISAs
and tax-deferred withdrawals from investment bonds
Platforms can facilitate use of multiple wrappers
Investment
Account
ISA
Investment
Bond
PLATFORM
Pension
Funding
Other
Pension
Income
For intermediary use only – not for use with your clients
42
Treating Customers Fairly
Outcome 1
Consumers can be confident that they are dealing with firms where fair treatment of customers
is central to the corporate culture.
Outcome 2
Products and services marketed and sold are designed to meet the needs of identified
consumer groups and are targeted accordingly.
Outcome 3
Consumers are provided with clear information and are kept appropriately informed before,
during and after the point of sale.
Outcome 4
Where consumers received advice, the advice is suitable
and takes into account their circumstances.
Outcome 5
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.
Outcome 6
Consumers do not face unreasonable post-sale barriers imposed by firms to change products,
switch provider, submit a claim or make a complaint.
For intermediary use only – not for use with your clients
43
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
For intermediary use only – not for use with your clients
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 deposits
Actively use their ISA allowance
By income levels or tax/trap thresholds
HRT who don’t want to lose child benefit
Contact your Zurich Partnership Development consultant for:
Details of our Platform and associated funds and features
Details of our range of Adviser Tools
Sterling Flexible Bond information
45
Handset Question 3
Would you like a Zurich Partnership Development Consultant to
contact you regarding the support available?
Yes – press 1
No – press 2
For intermediary use only – not for use with your clients
Thank you for listening
Important information
Any tax and legislation information is based on
. Zurich’s current understanding and may
change in the future
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.
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on any information in this advertisement when making an investment decision. This
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