Taxation

Our managers provide tax-planning advice in all areas of clients' personal finances. Tax efficient strategies and structures can be developed and the result of careful planning can be significant savings for clients. The design of a bespoke solution is crucial in almost all cases as tax impacts on most aspects of our financial lives. The amount of tax paid which could be legitimately saved runs into billions of pounds annually.

Careful use of trusts can enable family members or others to be provided
for in a responsible and prudent manner. In many cases, taxation can be
mitigated resulting in increased resources becoming available for the
beneficiaries. Our advisers will look creatively at the situation in order to
arrive at possible approaches to address a client's requirements.

Both personal portfolio bonds and offshore roll-up funds are tax efficient
investment structures that allow the investor to roll up income and gains
generated by the underlying assets without ongoing tax liabilities. Both
are attractive, therefore, to those individuals who are looking for long term
capital growth and who do not want the headaches associated with running
a direct portfolio. For example, no income or gains need to be accounted
for in the investor's tax return until benefits are actually taken from the
plan. Another attraction for both expatriates and international investors,
is that the investment is usually available in a wide range of currency links,
unlike their onshore counterparts which are invariably sterling denominated.

The first major difference is in the treatment of partial encashment. PPB's allow the investor to remove up to 5% of the original capital each year without incurring an immediate tax liability. This allowance accumulates if it is not used up in any year and is not available to roll-up funds. Wrapping a roll-up fund within a PPB also gives the investor more control over when to make a full encashment. This is because switches between roll-up funds, even those managed by the same company, will create a chargeable event, whereas a bond allows switches between funds without creating a tax charge. This is particularly useful, for example, where the investor wishes to switch to a less risky investment without incurring tax liabilities.

Turning to a returning expatriate, there are 2 main differences between the 2 investments that favour the bond structure. The first of these is time-apportionment relief, which gives a direct reduction of bond gains in proportion to the amount of time during the term of the bond that the investor was resident outside the UK. This benefit is not available to roll-up funds, and the whole gain is chargeable.

The second major advantage of the bond structure is the benefit of top-slicing relief where the whole gain causes the investor to move into the higher rate threshold. This works by spreading the investment gain over the total amount of complete policy years the policyholder has been resident in the UK.

For both clients and other advisers, it is best not to view roll-up funds and offshore bonds as competing products, but rather as complimentary to each other. Almost any roll-up fund is a suitable investment holding for an offshore bond and, by placing a roll-up fund in a bond, the investor benefits from the expertise of the fund manager, plus the additional tax benefits of a single premium bond. Obviously the tax benefits of wrapping a fund in a bond would need to be balanced with any extra charges the bond adds to the structure. As the above figures show, however, wrapping a roll-up fund in an offshore bond can make sense!!

   The EU-Savings Tax Directive began 1st July 2005 and it affects ALL EU-Residents

One will either face disclosure of your investment to your home country, or a withholding tax starting at 15% eventually increasing to 35%. The EU countries, which have elected to go down the withholding-tax route include Belgium, Luxembourg, Switzerland, Jersey, Guernsey, the Isle of Man, etc.

Legitimate tax-planning structures, such as a Personal Portfolio Bond, remains at the forefront of careful tax planning and importantly, protects the EU resident from the effects of the EU savings directive.
Additionally, in most EU countries, acceptable investments within a Personal Portfolio Bond enjoy the following benefits:

• The interest can roll up gross with no tax levied by the insurer
• The policyholder has no annual tax liability
• The benefits are, in certain circumstances, treated favourably, with attractive tax relief available (i.e. UK-Residents & Residents of France)

In a low interest rate environment, the deferral of income tax until a time when benefits will be taxed at a lower rate can mean the difference between the investment value keeping up with inflation or not.