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Dentons wealth clarity newsletter spring 2017

The document is a newsletter from ClarityProud highlighting changes in the insurance and financial industry and providing updates on various topics. It discusses the danger of retaining profits within a business and losing inheritance tax relief, the high costs of long term care, the benefits of long term investing over trying to time the market, tax efficient investing strategies like ISAs and pensions, and questions if ISAs are caught in the inheritance tax trap. It also lists upcoming elections that could lead to market volatility.

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ClarityProud to offer independent advice Newsletter Spring 2017 Welcome to our latest newsletter highlighting some important changes within the insurance and financial industry and our latest news. Welcome In this issue: If you’d like to find out more about any of the topics covered in this issue, or have any comments, please get in touch. We look forward to hearing from you. 01 The danger of retaining profit within your business 02 Impact of long term care costs 03 Time in the market, not timing the market 04 Tax year end and tax efficient planning 05 Is your ISA caught in the IHT trap? 06 Is Equity Release still a dirty word? The danger of retaining profit within your business Everyone knows that a successful business is one which grows and generates profit for its shareholders. However not everyone realises that if this profit is retained in cash and not reinvested in assets, then the valuable tax relief which makes trading businesses exempt from inheritance tax, could be lost. Business Property Relief (BPR) provides 100% relief from Inheritance Tax on the value of unquoted businesses or Alternative Investment Market (AIM) listed trading businesses, in the event of the death of a shareholder. However if the company holds a high cash balance, this high balance may prejudice the availability of BPR. Since the Global Financial Crisis and in the light of economic uncertainty, many businesses have chosen to maintain high corporate cash levels. With interest rates sitting so low and little prospect of increasing in the near future, the capital is not only generating poor returns for the company shareholders but also putting the business at risk of having assets being subject to inheritance tax which may otherwise have been exempt. If this is a concern to you or your clients, we can help you find a solution to overcome the dual issues of reduced BPR eligibility and poor returns on corporate cash. A solution which focuses on capital preservation but provides an inflation-beating return as well as offering liquidity, allowing owners to access their funds should they be required, and to restore the BPR qualification immediately.
Time in the market, not timing the market It is very hard to predict when it’s the best time to invest into (or exit from) a stock market. The speed at which markets react to news means share prices have usually already priced in the effect of significant news. When markets move, they can move rapidly. Investors, in attempting to get their timing right, can very easily be too late to catch the market’s reaction. The graph opposite clearly demonstrates how an investor in the FTSE All-Share market could miss out on returns on the market’s best days over 20 years to the end of 2016 had they tried to emulate this. Proud to offer independent advice 02 | Dentons Wealth | Newsletter Spring 2017 There is no doubt that having to move into a Nursing or Residential Care Home can be a highly emotional time. However, coupled with this is the fact that the costs associated with moving into a Home (or even having care provided in your own home) can have a debilitating effect on your wealth. Taken together, it can be quite devastating for individuals and their families. > Research conducted by healthcare analysts, LaingBuisson has found that the average cost of Nursing Home Care is now £750 a week (Report dated 2015). This equates to nearly £40,000 per annum. > In the Partnership Care Report 2016, it was confirmed that the average stay in care is four years and one in every eight ‘self-funders’ stay in a home for at least eight years. > In the LGIU Independent Ageing 2013 report, it states that, unfortunately, one in four people who fund their own care run out of money. However, you should be aware that such actions are fraught with problems, whether or not there has been a legal transfer of ownership. Your Local Authority will almost always ask you questions about disposal of assets and will certainly make enquiries. There are no time limits on how far a Local Authority can go back when considering deprivation of assets. Additionally, if the property was given away before you needed care, the Local Authority could ask the recipients of the property to pay a contribution towards your care. Clearly, the significance of the costs associated with long term care can severely impact on your wish to pass on wealth to your next or future generation. You need to ensure you are aware of the rules which apply in this area as you wouldn’t want to fall foul of the traps and pitfalls that could potentially catch you out and cause you to lose even more financially. It is, therefore, only sensible to consider seeking expert advice in this area while you can do something to protect your wealth. Contact our specialist long term care team to find out how we can help you. Have you thought about the impact of long term care costs on your retirement wealth? Source : FactSet, FTSE, J.P.Morgan Asset Management. For illustrative purposes only. Assumes all income is reinvested; returns calculated daily over the time period assuming no return on each of the specific number of best days. Data as at 31 December 2016. If you would like to discuss your portfolio and how to get the best from the stock markets please contact one of our Advisers. Returns of FTSE All-Share GBP, a value of £10,000 investment between 1996 and 2016 with annualised return (%) How detrimental could all this be to you and your loved ones? You may think you would receive help from your Local Authority. You may get some general advice, but from a financial perspective, any support available is means tested. This means that you may enjoy little or no assistance at your time of need. Indeed, if you have more than £23,250 in England (£23,750 in Wales or £25,250 in Scotland) you will have to pay for all your care needs. The means tested sum will include your savings, income, and maybe your property. Indeed, it is not until you only have savings of less that £14,250, when it’s only your income that is considered for means testing. You may also have considered that there would be some prudent actions you could implement to reduce this impact on your wealth. You might have thought about giving away or selling your home to your children or other family members to reduce the value of your estate. Or about placing certain of your assets in trust hoping to achieve the same result. Fully invested Missed 10 best days Missed 30 best days Missed 50 best days 7.40% 4.20% 0.20% -2.90% 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
03 Tax year end and tax efficient planning Like birthdays, Christmas and April Fools’ Day, some dates are imprinted in a person’s memory from an early age. Some dates in our calendar are just learned and accepted as events, we never question or ask why or what their significance is. For instance, the tax year in the UK runs from the 6th April to 5th April the following year. Indeed, a strange set of dates to remember – yet we all do! These two dates affect millions of individuals, thousands of businesses and a multitude of countries alike. However, most of us get very little satisfaction from paying tax and politicians of all stripes seem to believe they need your money more than you do. So where can you turn if you want to invest tax efficiently? ISAs, Pensions, Venture Capitalist Trusts, Enterprise Investment Schemes and Seed Enterprise Investment Schemes (SEIS) are all ways of investing your capital that involve favourable tax treatment, be it for tax efficient growth, income tax relief or capital gains tax deferral. Investing through a tax-efficient wrapper can give a significant boost to an overall investment portfolio, but they have to be blended with an appropriate investment strategy to give the best outcome. There is a danger, moreover, of letting the tax tail wag the investment dog - so if you’re going to look to some of the racier schemes, you need to be sure that you are prepared for a potentially volatile ride and more importantly, seek professional advice. INDIVIDUAL SAVINGS ACCOUNT (ISA): ISAs offer huge investment flexibility and all income and capital gains on investments within them are free from further tax. For higher-rate and additional-rate taxpayers, income tax rates of 40 and 45 per cent respectively are higher than those for capital gains tax, so it can make more sense to prioritise income-generating shares and other income-producing investments such as equity income or bond funds for an ISA. In this way, it’s possible to generate a long-term, tax-free income stream, which will be particularly useful in retirement, when income becomes a priority. However it is worth reinvesting dividends in the early stages of building up your ISA portfolio when you’re likely still to be working, as the effects of compounding can be very beneficial. The ISA allowance for tax year 2016/17 is £15,240 and for 2017/18 will be £20,000. PENSIONS: Income from a pension, in contrast to that from ISAs, is taxable but the key advantage is that investors get tax relief on their initial contribution at their highest marginal rate, up to an annual allowance of £40,000 – this, at a time when many people are likely to be higher-rate taxpayers. The current lifetime allowance (the maximum amount you can hold in your pension before HMRC claw back tax advantages) is £1 million. Unused annual allowance can be brought forward from three previous tax years and used in the current tax year. However, you must have been a member of a registered pension scheme in the tax year giving rise to the unused relief that is brought forward. It is important to take advice on contribution levels because if the total contributions you make, or that are made on your behalf, exceed your available allowance (including any unused relief brought forward), a tax charge will arise effectively withdrawing tax relief on the excess contribution. For those interested in investing in some of the UK’s most dynamic and entrepreneurial small companies, there are some extremely tax-efficient options
Proud to offer independent advice 04 A further attraction to pensions is that they tend to be long term as they cannot be accessed before the age of 55; and, like ISAs, all income and capital gains are free from tax within them. This allows investors to take greater risks and therefore perhaps look at investment areas such as emerging markets or smaller companies, which are more volatile but may have higher growth characteristics over the longer term. Pensions are also outside of your estate and therefore not measured against your inheritance tax nil rate-band when you pass away. You can also pass the proceeds of your pension to your immediate family. VENTURE CAPITALIST TRUSTS (VCTs): For those interested in investing in some of the UK’s most dynamic and entrepreneurial small companies, there are some extremely tax-efficient options, chief among which are Venture Capitalist Trusts. The majority of these are inherently high risk. To retain maximum tax benefits VCTs must be held for at least five years. Income tax relief of 30 per cent is available on new issues of VCT shares. Investors can put up to £200,000 a year in a VCT and receive income tax relief on the entire amount, although they cannot receive more in rebates than has been paid in income tax. When holdings are eventually sold, any gains made are free from capital gains tax (CGT). Any dividends received are also free from tax. ENTERPRISE INVESTMENT SCHEME (EIS): The tax reliefs available on Enterprise Investment Schemes (EISs) are even more generous than those on a VCT. EIS invest in very small, start-up style companies, so they are also high risk. The tax relief on an initial investment into an EIS is also 30 per cent but investors can invest between £500 and £1 million, potentially getting rid of their entire income tax liability for a year. There is also the potential to defer capital gains made on a separate investment by reinvesting them into an EIS. The reinvestment has to meet certain criteria - disposal of the original asset has to be less than 12 months before the EIS investment or less than 36 months after it. In this way, gains can be deferred until a tax year in which you are not using your CGT allowance, or have retired and are paying lower tax rates anyway. For the EIS investment itself, no CGT is payable if you sell the shares after three years, provided the EIS initial income tax relief was given and not withdrawn on those shares. Is your ISA caught in the inheritance tax trap? Many people use Individual Savings Accounts (ISAs) to build wealth in a tax efficient manner. If you paid in the full allowance since the introduction of ISAs in 1999 you would have contributed £166,560 into your ISA, (£333,120 if a couple) which most likely would have enjoyed some investment growth. An ISA offers valuable tax benefits during your lifetime, but it is still subject to inheritance tax along with the rest of your estate. A recent study by the Prudential suggested that the average inheritance tax bill was in the region of £177,000. This figure is higher in London with the average amount paid per liable estate totalling almost £236,000. (https://www.pru.co.uk/press-centre/ inheritance-tax-bill/) This could mean on death (or second death in the case of a married couple) that the tax efficient ISA is hit with a 40% inheritance tax bill. In the case above, where a couple has saved the full amount into ISAs since 1999, the £333,120 saved into an ISA could potentially be hit with a tax bill of £133,248, or for an individual a tax bill of £66,624. We can help you move your ISAs out of the inheritance tax trap, without losing your ISA tax benefits and without losing access to your capital. We can also do this if a power of attorney is in place and without any impact on your nil rate band. Both VCTs and EISs can only invest in companies less than 12 years old, unless the investment will lead to ‘a substantial change in the company’s activity’. SEED ENTERPRISE INVESTMENT SCHEME (SEIS): The Seed Enterprise Investment Scheme (SEIS) is a version of EIS, offering an even larger tax break on very small start-up businesses. Launched in 2012, SEIS give tax breaks to individuals investing up to £100,000 in qualifying companies. By committing cash to a SEIS for three years, the investor benefits from a 50 per cent income tax break, CGT relief and capital gains loss relief. In summary, making the most of tax efficient investments brings us back to those dates which are imprinted in your memory and you could therefore say that tax-efficient savings are like an early birthday or Christmas present and nobody is going to make a fool out of you from one April to another! If you would like to discuss the potential benefits of tax efficient investments and how they can form a part of your financial planning, please contact one of our Independent Financial Advisers. Please note these messages are for information only and do not constitute advice.
Proud to offer independent advice 05 | Dentons Wealth | Newsletter Spring 2017 Forthcoming Events 8th March – UK Spring Budget – the last to take place in the Spring, before the budget is moved to the Autumn 31st March – UK government to trigger Article 50 to formally begin UK’s exit from EU March – Netherlands Parliamentary election April-May – French presidential election Sept-Oct – German federal election Spring 2018 – Austrian and Italian general elections Elections across the EU could lead to some further market volatility. > Your own independent solicitor to act for you and explain the risks and benefits In addition to the above your financial adviser must be authorised and qualified to advise on these plans and present plan illustrations in a standard format which is comparable with competitors. There is now, therefore, a better overall market for the consumer and 2017 should see more plans taken out than ever before with lending on course in 2016 to exceed £2bn in a single year for the first time. However, there are still issues with equity release, not least the cost of these plans compared to a standard residential mortgage. Lenders, of course, argue that the increased costs reflect the guarantees that are built into the products such as the home for life and no negative equity guarantee. For some plans roll up of interest is a feature and this compounding of interest can see a lump sum double in about 10 years. Costs can be contained by covering interest rather than allowing it to roll up, or a drawdown facility where you take sums only as and when needed. Indeed there are new product features regularly introduced in response to consumer demand. A number of consumers currently have standard interest only mortgages and are reaching an age where these products are due for repayment: equity release could offer a realistic solution for these borrowers to continue into retirement. In conclusion, this is a market that has been controversial for many different reasons. Today standards are higher and regulation is more focused and appropriate. It is not always a perfect solution, but for the right client and their circumstances it is certainly well worth considering. Contact our equity release specialist to see how this could work for you. Is equity release still a dirty word? Equity release is a range of products that allow you to access the value – or equity – tied up in your home. It is primarily aimed at the over 55’s. Cash can be taken out as a lump sum or in smaller amounts or a combination of both and the funds raised can be used for pretty much anything - helping with bills, a new car, gifts to children or education for grandchildren. Some people are even looking at creative ways to reduce potential future inheritance tax bills. So, why does the “dirty word” or perhaps more appropriately “dirty phrase” question persist when talking about equity release? Well, the history of this sector has been problematical with issues surrounding lenders, product terms and costs. At its heart, these products were aimed at elderly clients and their most valuable asset. It was almost inevitable that these products would come under considerable scrutiny and questions were raised as to whether they were structured to satisfy client needs or were in the best interests of the more sophisticated finance providers. The finance industry recognised these issues and the growing need for consumer protection. As a result it formed SHIP (Safe Home Income Plans) in 1991. In May 2012 this body was relaunched as the Equity Release Council with a broader membership and covering all aspects of equity release advice and products. The Equity Release Council Code includes the following provisions: > The right to remain in your property for life or until you need to move into long-term care > No negative equity guarantee – you will never owe more than the value of your home > The right to transfer the equity release plan if you move to another eligible property > Fair, simple and complete presentation of products
DW.Newsletter.0217 Dentons Wealth Sutton House, Weyside Park Catteshall Lane, Godalming Surrey GU7 1XE T 01483 521 521 F 01483 521 515 E enquiries@dentonswealth.co.uk w www.dentonswealth.co.uk Dentons Wealth is a trading name of Dentons Investment Services Limited which is authorised and regulated by the Financial Conduct Authority, with the FCA register number 194538. Dentons Investment Services is registered in England & Wales under number 3955927. This document is not a recommendation for a particular course of action. It is intended to be for information purposes only and should not be relied on for advice or recommendations. Information herein is believed to be reliable but Dentons Wealth does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Dentons Wealth has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory regime. Contact us For a review of your personal, business or financial circumstances, or to find out more information about any of the subjects mentioned in this newsletter, please contact one of our Advisers. Tel 01483 521 521 Fax 01483 521 515 Email enquiries@dentonswealth.co.uk www.dentonswealth.co.uk Dentons Wealth Independent Financial Adviser Sutton House Weyside Park Catteshall Lane Godalming Surrey GU7 1XE The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. The content of this newsletter should not be taken as being professional advice and reflects Dentons Wealth interpretation of the current law and HM Revenue and Customs practices. Please update your details We like to keep in touch with you by email which is not only quicker, meaning the content is more timely and appropriate, but it also helps with reducing waste and excess costs. Please can you email enquiries@ dentonswealth.co.uk — with your current email address, full name and a policy/ reference number, or alternatively please call us on 01483 521521. We look forward to hearing from you.

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Dentons wealth clarity newsletter spring 2017

  • 1.
    ClarityProud to offerindependent advice Newsletter Spring 2017 Welcome to our latest newsletter highlighting some important changes within the insurance and financial industry and our latest news. Welcome In this issue: If you’d like to find out more about any of the topics covered in this issue, or have any comments, please get in touch. We look forward to hearing from you. 01 The danger of retaining profit within your business 02 Impact of long term care costs 03 Time in the market, not timing the market 04 Tax year end and tax efficient planning 05 Is your ISA caught in the IHT trap? 06 Is Equity Release still a dirty word? The danger of retaining profit within your business Everyone knows that a successful business is one which grows and generates profit for its shareholders. However not everyone realises that if this profit is retained in cash and not reinvested in assets, then the valuable tax relief which makes trading businesses exempt from inheritance tax, could be lost. Business Property Relief (BPR) provides 100% relief from Inheritance Tax on the value of unquoted businesses or Alternative Investment Market (AIM) listed trading businesses, in the event of the death of a shareholder. However if the company holds a high cash balance, this high balance may prejudice the availability of BPR. Since the Global Financial Crisis and in the light of economic uncertainty, many businesses have chosen to maintain high corporate cash levels. With interest rates sitting so low and little prospect of increasing in the near future, the capital is not only generating poor returns for the company shareholders but also putting the business at risk of having assets being subject to inheritance tax which may otherwise have been exempt. If this is a concern to you or your clients, we can help you find a solution to overcome the dual issues of reduced BPR eligibility and poor returns on corporate cash. A solution which focuses on capital preservation but provides an inflation-beating return as well as offering liquidity, allowing owners to access their funds should they be required, and to restore the BPR qualification immediately.
  • 2.
    Time in the market,not timing the market It is very hard to predict when it’s the best time to invest into (or exit from) a stock market. The speed at which markets react to news means share prices have usually already priced in the effect of significant news. When markets move, they can move rapidly. Investors, in attempting to get their timing right, can very easily be too late to catch the market’s reaction. The graph opposite clearly demonstrates how an investor in the FTSE All-Share market could miss out on returns on the market’s best days over 20 years to the end of 2016 had they tried to emulate this. Proud to offer independent advice 02 | Dentons Wealth | Newsletter Spring 2017 There is no doubt that having to move into a Nursing or Residential Care Home can be a highly emotional time. However, coupled with this is the fact that the costs associated with moving into a Home (or even having care provided in your own home) can have a debilitating effect on your wealth. Taken together, it can be quite devastating for individuals and their families. > Research conducted by healthcare analysts, LaingBuisson has found that the average cost of Nursing Home Care is now £750 a week (Report dated 2015). This equates to nearly £40,000 per annum. > In the Partnership Care Report 2016, it was confirmed that the average stay in care is four years and one in every eight ‘self-funders’ stay in a home for at least eight years. > In the LGIU Independent Ageing 2013 report, it states that, unfortunately, one in four people who fund their own care run out of money. However, you should be aware that such actions are fraught with problems, whether or not there has been a legal transfer of ownership. Your Local Authority will almost always ask you questions about disposal of assets and will certainly make enquiries. There are no time limits on how far a Local Authority can go back when considering deprivation of assets. Additionally, if the property was given away before you needed care, the Local Authority could ask the recipients of the property to pay a contribution towards your care. Clearly, the significance of the costs associated with long term care can severely impact on your wish to pass on wealth to your next or future generation. You need to ensure you are aware of the rules which apply in this area as you wouldn’t want to fall foul of the traps and pitfalls that could potentially catch you out and cause you to lose even more financially. It is, therefore, only sensible to consider seeking expert advice in this area while you can do something to protect your wealth. Contact our specialist long term care team to find out how we can help you. Have you thought about the impact of long term care costs on your retirement wealth? Source : FactSet, FTSE, J.P.Morgan Asset Management. For illustrative purposes only. Assumes all income is reinvested; returns calculated daily over the time period assuming no return on each of the specific number of best days. Data as at 31 December 2016. If you would like to discuss your portfolio and how to get the best from the stock markets please contact one of our Advisers. Returns of FTSE All-Share GBP, a value of £10,000 investment between 1996 and 2016 with annualised return (%) How detrimental could all this be to you and your loved ones? You may think you would receive help from your Local Authority. You may get some general advice, but from a financial perspective, any support available is means tested. This means that you may enjoy little or no assistance at your time of need. Indeed, if you have more than £23,250 in England (£23,750 in Wales or £25,250 in Scotland) you will have to pay for all your care needs. The means tested sum will include your savings, income, and maybe your property. Indeed, it is not until you only have savings of less that £14,250, when it’s only your income that is considered for means testing. You may also have considered that there would be some prudent actions you could implement to reduce this impact on your wealth. You might have thought about giving away or selling your home to your children or other family members to reduce the value of your estate. Or about placing certain of your assets in trust hoping to achieve the same result. Fully invested Missed 10 best days Missed 30 best days Missed 50 best days 7.40% 4.20% 0.20% -2.90% 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
  • 3.
    03 Tax year endand tax efficient planning Like birthdays, Christmas and April Fools’ Day, some dates are imprinted in a person’s memory from an early age. Some dates in our calendar are just learned and accepted as events, we never question or ask why or what their significance is. For instance, the tax year in the UK runs from the 6th April to 5th April the following year. Indeed, a strange set of dates to remember – yet we all do! These two dates affect millions of individuals, thousands of businesses and a multitude of countries alike. However, most of us get very little satisfaction from paying tax and politicians of all stripes seem to believe they need your money more than you do. So where can you turn if you want to invest tax efficiently? ISAs, Pensions, Venture Capitalist Trusts, Enterprise Investment Schemes and Seed Enterprise Investment Schemes (SEIS) are all ways of investing your capital that involve favourable tax treatment, be it for tax efficient growth, income tax relief or capital gains tax deferral. Investing through a tax-efficient wrapper can give a significant boost to an overall investment portfolio, but they have to be blended with an appropriate investment strategy to give the best outcome. There is a danger, moreover, of letting the tax tail wag the investment dog - so if you’re going to look to some of the racier schemes, you need to be sure that you are prepared for a potentially volatile ride and more importantly, seek professional advice. INDIVIDUAL SAVINGS ACCOUNT (ISA): ISAs offer huge investment flexibility and all income and capital gains on investments within them are free from further tax. For higher-rate and additional-rate taxpayers, income tax rates of 40 and 45 per cent respectively are higher than those for capital gains tax, so it can make more sense to prioritise income-generating shares and other income-producing investments such as equity income or bond funds for an ISA. In this way, it’s possible to generate a long-term, tax-free income stream, which will be particularly useful in retirement, when income becomes a priority. However it is worth reinvesting dividends in the early stages of building up your ISA portfolio when you’re likely still to be working, as the effects of compounding can be very beneficial. The ISA allowance for tax year 2016/17 is £15,240 and for 2017/18 will be £20,000. PENSIONS: Income from a pension, in contrast to that from ISAs, is taxable but the key advantage is that investors get tax relief on their initial contribution at their highest marginal rate, up to an annual allowance of £40,000 – this, at a time when many people are likely to be higher-rate taxpayers. The current lifetime allowance (the maximum amount you can hold in your pension before HMRC claw back tax advantages) is £1 million. Unused annual allowance can be brought forward from three previous tax years and used in the current tax year. However, you must have been a member of a registered pension scheme in the tax year giving rise to the unused relief that is brought forward. It is important to take advice on contribution levels because if the total contributions you make, or that are made on your behalf, exceed your available allowance (including any unused relief brought forward), a tax charge will arise effectively withdrawing tax relief on the excess contribution. For those interested in investing in some of the UK’s most dynamic and entrepreneurial small companies, there are some extremely tax-efficient options
  • 4.
    Proud to offerindependent advice 04 A further attraction to pensions is that they tend to be long term as they cannot be accessed before the age of 55; and, like ISAs, all income and capital gains are free from tax within them. This allows investors to take greater risks and therefore perhaps look at investment areas such as emerging markets or smaller companies, which are more volatile but may have higher growth characteristics over the longer term. Pensions are also outside of your estate and therefore not measured against your inheritance tax nil rate-band when you pass away. You can also pass the proceeds of your pension to your immediate family. VENTURE CAPITALIST TRUSTS (VCTs): For those interested in investing in some of the UK’s most dynamic and entrepreneurial small companies, there are some extremely tax-efficient options, chief among which are Venture Capitalist Trusts. The majority of these are inherently high risk. To retain maximum tax benefits VCTs must be held for at least five years. Income tax relief of 30 per cent is available on new issues of VCT shares. Investors can put up to £200,000 a year in a VCT and receive income tax relief on the entire amount, although they cannot receive more in rebates than has been paid in income tax. When holdings are eventually sold, any gains made are free from capital gains tax (CGT). Any dividends received are also free from tax. ENTERPRISE INVESTMENT SCHEME (EIS): The tax reliefs available on Enterprise Investment Schemes (EISs) are even more generous than those on a VCT. EIS invest in very small, start-up style companies, so they are also high risk. The tax relief on an initial investment into an EIS is also 30 per cent but investors can invest between £500 and £1 million, potentially getting rid of their entire income tax liability for a year. There is also the potential to defer capital gains made on a separate investment by reinvesting them into an EIS. The reinvestment has to meet certain criteria - disposal of the original asset has to be less than 12 months before the EIS investment or less than 36 months after it. In this way, gains can be deferred until a tax year in which you are not using your CGT allowance, or have retired and are paying lower tax rates anyway. For the EIS investment itself, no CGT is payable if you sell the shares after three years, provided the EIS initial income tax relief was given and not withdrawn on those shares. Is your ISA caught in the inheritance tax trap? Many people use Individual Savings Accounts (ISAs) to build wealth in a tax efficient manner. If you paid in the full allowance since the introduction of ISAs in 1999 you would have contributed £166,560 into your ISA, (£333,120 if a couple) which most likely would have enjoyed some investment growth. An ISA offers valuable tax benefits during your lifetime, but it is still subject to inheritance tax along with the rest of your estate. A recent study by the Prudential suggested that the average inheritance tax bill was in the region of £177,000. This figure is higher in London with the average amount paid per liable estate totalling almost £236,000. (https://www.pru.co.uk/press-centre/ inheritance-tax-bill/) This could mean on death (or second death in the case of a married couple) that the tax efficient ISA is hit with a 40% inheritance tax bill. In the case above, where a couple has saved the full amount into ISAs since 1999, the £333,120 saved into an ISA could potentially be hit with a tax bill of £133,248, or for an individual a tax bill of £66,624. We can help you move your ISAs out of the inheritance tax trap, without losing your ISA tax benefits and without losing access to your capital. We can also do this if a power of attorney is in place and without any impact on your nil rate band. Both VCTs and EISs can only invest in companies less than 12 years old, unless the investment will lead to ‘a substantial change in the company’s activity’. SEED ENTERPRISE INVESTMENT SCHEME (SEIS): The Seed Enterprise Investment Scheme (SEIS) is a version of EIS, offering an even larger tax break on very small start-up businesses. Launched in 2012, SEIS give tax breaks to individuals investing up to £100,000 in qualifying companies. By committing cash to a SEIS for three years, the investor benefits from a 50 per cent income tax break, CGT relief and capital gains loss relief. In summary, making the most of tax efficient investments brings us back to those dates which are imprinted in your memory and you could therefore say that tax-efficient savings are like an early birthday or Christmas present and nobody is going to make a fool out of you from one April to another! If you would like to discuss the potential benefits of tax efficient investments and how they can form a part of your financial planning, please contact one of our Independent Financial Advisers. Please note these messages are for information only and do not constitute advice.
  • 5.
    Proud to offerindependent advice 05 | Dentons Wealth | Newsletter Spring 2017 Forthcoming Events 8th March – UK Spring Budget – the last to take place in the Spring, before the budget is moved to the Autumn 31st March – UK government to trigger Article 50 to formally begin UK’s exit from EU March – Netherlands Parliamentary election April-May – French presidential election Sept-Oct – German federal election Spring 2018 – Austrian and Italian general elections Elections across the EU could lead to some further market volatility. > Your own independent solicitor to act for you and explain the risks and benefits In addition to the above your financial adviser must be authorised and qualified to advise on these plans and present plan illustrations in a standard format which is comparable with competitors. There is now, therefore, a better overall market for the consumer and 2017 should see more plans taken out than ever before with lending on course in 2016 to exceed £2bn in a single year for the first time. However, there are still issues with equity release, not least the cost of these plans compared to a standard residential mortgage. Lenders, of course, argue that the increased costs reflect the guarantees that are built into the products such as the home for life and no negative equity guarantee. For some plans roll up of interest is a feature and this compounding of interest can see a lump sum double in about 10 years. Costs can be contained by covering interest rather than allowing it to roll up, or a drawdown facility where you take sums only as and when needed. Indeed there are new product features regularly introduced in response to consumer demand. A number of consumers currently have standard interest only mortgages and are reaching an age where these products are due for repayment: equity release could offer a realistic solution for these borrowers to continue into retirement. In conclusion, this is a market that has been controversial for many different reasons. Today standards are higher and regulation is more focused and appropriate. It is not always a perfect solution, but for the right client and their circumstances it is certainly well worth considering. Contact our equity release specialist to see how this could work for you. Is equity release still a dirty word? Equity release is a range of products that allow you to access the value – or equity – tied up in your home. It is primarily aimed at the over 55’s. Cash can be taken out as a lump sum or in smaller amounts or a combination of both and the funds raised can be used for pretty much anything - helping with bills, a new car, gifts to children or education for grandchildren. Some people are even looking at creative ways to reduce potential future inheritance tax bills. So, why does the “dirty word” or perhaps more appropriately “dirty phrase” question persist when talking about equity release? Well, the history of this sector has been problematical with issues surrounding lenders, product terms and costs. At its heart, these products were aimed at elderly clients and their most valuable asset. It was almost inevitable that these products would come under considerable scrutiny and questions were raised as to whether they were structured to satisfy client needs or were in the best interests of the more sophisticated finance providers. The finance industry recognised these issues and the growing need for consumer protection. As a result it formed SHIP (Safe Home Income Plans) in 1991. In May 2012 this body was relaunched as the Equity Release Council with a broader membership and covering all aspects of equity release advice and products. The Equity Release Council Code includes the following provisions: > The right to remain in your property for life or until you need to move into long-term care > No negative equity guarantee – you will never owe more than the value of your home > The right to transfer the equity release plan if you move to another eligible property > Fair, simple and complete presentation of products
  • 6.
    DW.Newsletter.0217 Dentons Wealth Sutton House,Weyside Park Catteshall Lane, Godalming Surrey GU7 1XE T 01483 521 521 F 01483 521 515 E [email protected] w www.dentonswealth.co.uk Dentons Wealth is a trading name of Dentons Investment Services Limited which is authorised and regulated by the Financial Conduct Authority, with the FCA register number 194538. Dentons Investment Services is registered in England & Wales under number 3955927. This document is not a recommendation for a particular course of action. It is intended to be for information purposes only and should not be relied on for advice or recommendations. Information herein is believed to be reliable but Dentons Wealth does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Dentons Wealth has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory regime. Contact us For a review of your personal, business or financial circumstances, or to find out more information about any of the subjects mentioned in this newsletter, please contact one of our Advisers. Tel 01483 521 521 Fax 01483 521 515 Email [email protected] www.dentonswealth.co.uk Dentons Wealth Independent Financial Adviser Sutton House Weyside Park Catteshall Lane Godalming Surrey GU7 1XE The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. The content of this newsletter should not be taken as being professional advice and reflects Dentons Wealth interpretation of the current law and HM Revenue and Customs practices. Please update your details We like to keep in touch with you by email which is not only quicker, meaning the content is more timely and appropriate, but it also helps with reducing waste and excess costs. Please can you email enquiries@ dentonswealth.co.uk — with your current email address, full name and a policy/ reference number, or alternatively please call us on 01483 521521. We look forward to hearing from you.