Tax Led Presentation - STEP - 2015 - 03 - 05

Risk Warning• Tax Led Investments are potentially higher-risk, longer-term and less liquid investments; investors may get back less than expected and may have difficulties selling thei

STEP - Tax Led Investments

Alex Nicklin- Financial Planner & Wealth Manager

Risk Warning

• Tax Led Investments are potentially higher-risk, longer-term and less liquid

investments; investors may get back less than expected and may have

difficulties selling their investment

• Tax Led Investments should only be considered once other planning

opportunities have been fully explored

• The levels and basis of taxation may be subject to change and may impact

negatively on any Tax Led Investment

• Any tax treatment depends on the individual circumstances of each investor

and may be subject to change

• These investments may lose their tax status through decisions made by the

investment manager

• You are encouraged to seek independent tax advice before considering these

investments

• Tax Led Investments should form only a small part of the client’s portfolio

This presentation/article/document is solely for professional advisers and should not be construed as investment advice

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1 Tax Led Investments

3 Risks and risk mitigation

2 Tax Led Solutions

1 Before and after retirement

3 Tax Led Service

1 How do we select suitable investments?

Tax Led Investments – what are they?

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Introduced in 1995 Introduced in 1994

PLCs Listed on London Stock

Gross assets of ≤ £15 million before

and ≤ £16 million after investment

Gross assets of ≤ £15 million before and ≤ £16 million after investment

≤ 250 employees ≤ 250 employees

Investee companies can receive ≤ £5

million per 12 months

Investee companies can receive ≤ £5 million per 12 months

Investee companies need HMRC

approval Investee companies need HMRC approval

VCT need to maintain qualifying

status to give tax benefits to investors

EIS needs to maintain qualifying status to give tax benefits to investors Evergreen or planned exit Evergreen or planned exit

Generalist, AIM, Specialist,

Technology Generalist, AIM, Specialist, Technology

Company only Company, Fund, Portfolio Service

Tax Led Investments – Comparison

Minimum holding

Capital gains tax

deferral

Tax Led Investments – examples

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Tax Led Investments – what risks?

• Planned exit EIS

• VCTs with buy-back policy

• BPR with minimum 6 month liquidity

Regulatory Risk

• Changes to tax treatment

• Changes to qualifying rules

Regulatory Risk

• Understanding FCA and HMRC policy

• Anticipating rule changes

Tax Led Service – who benefits?

FCA Definition

Net Investable assets exclude

• Primary residence or any money raised through a loan secured on that property;

• Any rights under a qualifying contract of insurance; or

• Any benefits (in the form of pensions or otherwise) which are payable on the termination of service or on death or retirement

FCA Developments

• Potential to increase the HNW criteria in line with USA and EU

Exceptions

• Clients may invests more than 10% of their net assets when this does not impact on their (long-term) cash flow and/or capacity for loss

Investor Ordinary Retail Investor

Ability to reclaim income tax

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Tax Led Investments – EIS Loss Relief

EIS Investments Investment 1 Investment 2 Investment 3 Investment 4 Investment 5 Total

Tax Led Solutions – before retirement

VCT Example

Client restricted by lower pension contribution levels

Concerned over income levels in retirement

Financial planning indicates gap in retirement funding of £300,000

Adviser recommends £75,000 in VCTs per year for 4 years

Tax Led Solutions – before retirement

Tax Led Solutions – tax planning

Tax Led Solutions – before retirement

EIS Example

•Client not started a retirement plan yet

•Client restricted by lower pension contribution levels

•Financial planning indicates gap in retirement funding of £785,000

•Adviser recommends £70,000 in EIS per year for 24 years using 4-year

rolling EIS investment programme

Pension contribution £26,250 (gross)

After 24 years Retirement fund of £787,500

EIS Portfolio of £280,000

Tax Led Solutions – at retirement

Tax Free Retirement

The client

•has a SIPP valued at £1.2 million

•qualifies for state pension

•takes £300,000 (25%) and draws down balance at £60,000 p/a

•will have annual taxable income of £56,000 (excl personal allowance)

•will have a net income of £49,000 and an income tax bill of £16,000

•The adviser recommends £56,000 in EIS per year indefinitely using 4-year

rolling EIS investment programme

Income tax relief £16,800

NB All figures are approximate

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Tax Led Solutions – after retirement

Flexible Drawdown and EIS

•Client has a SIPP valued at £300,000 and £285,000 spare cash

•Client is suitable for flexible drawdown

•Financial planning indicates no need for funds

•Client is concerned about paying 45% income tax on drawdown

•Client also concerned about paying 55% in inheritance tax

•Adviser recommends £100,000 drawdown per year for 3 years

•Adviser recommends £150,000 in EIS per year for 3 years

£95,000 (spare cash)

£150,000

Tax Led Solutions – estate planning

Tax Led Gifting

•Client is 75 years old and has 2 children

•Client holds £100,000 in VCTs providing £5,000 tax free income

•Financial planning indicates no need for income

•Total estate value £1 million

•Adviser recommends gifting of VCTs 50/50 to children

•After 7 years estate worth £900,000

•Client has saved £40,000 on IHT

•Children have each received £17,500 tax free income over 7 years

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Tax Led Solutions – estate planning

Estate Planning and EIS

•Client is 70 years old

•Client has an estate worth £2 million

•Client pays £30,000 per year in income tax on pension (and other) income

•Client is concerned about inheritance tax liability

•Adviser recommends a series of conventional estate planning solutions

•Client becomes concerned about losing too much control

•Adviser also recommends an EIS investment

Income tax relief:£60,000

Tax Led Solutions – School Fees

Tax Efficient School Fee Planning

•Client is concerned about future school fees for his child

•Adviser recommends £85,000 in EIS per year for the duration of the child’s education using 4-year rolling EIS investment programme

•After the child finishes their education the client discontinues the

re-investment programme (or continues this into retirement)

Income tax relief:£25,500

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Tax Led Solutions – tax planning

Profit extraction Do nothing (£) Invest in EIS (£)

Tax Led Solutions – Business

Investment Relief

Investment Management Services Core services

Client Value

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Tax Led Service – selection process

• Application of minimum selection criteria to whole of market

• Product Selection Committee

Product Selection Committee

companies

≥ 10 investee companies ≥ 4 investee companies

< 5% initial; < 4% annual < 5% initial; < 3% annual

Dividend & buy-back policy HMRC Advance Assurance

≥ 84% rating by Tax Shelter

Questions?