VCT/EIS AND TAX PLANNING IDEAS. The following presentation is for investment professionals only and should not be relied upon by any other person

Transcription

1 VCT/EIS AND TAX PLANNING IDEAS The following presentation is for investment professionals only and should not be relied upon by any other person

2 This slide looks important And you can tell it is because the whole thing looks like the small print we usually try to avoid. But there are some things we should let you know about before we get to it. The following presentation is for investment professionals only and should not be relied upon by any other person. Information is current as at May 2014 and is sourced to Octopus Investments Limited unless otherwise stated. If this document is forwarded to another person, please ensure you ve taken responsibility for the document under the financial promotions rules and identified yourself as the issuer. The information you re about to see is not a recommendation. The decision to invest (or not) should not be based on this document alone. Do your research, talk to our experts and make an informed decision. Octopus accepts no liability for any direct, indirect or consequential losses arising from decisions to act or not act based solely on this document.. By investing in these products capital is at risk and investors may not get back the full amount invested. All statements and opinions are current at the date of publication and may not be applicable thereafter. They are based on our analysis of data that we believe to be objective and reliable. However, we accept no liability in respect to its completeness and accuracy (except where incompleteness or inaccuracy is caused by gross negligence or fraud). We try to avoid conjecture neither past performance nor forecasts are a reliable indicator of future results. Rates of tax, tax benefits and allowances are based on current legislation and HMRC practice and depend on personal circumstances. These can change and are not guaranteed. Nothing in this document should be regarded as constituting legal, taxation, investment or other advice. Prospective investors are advised to consult their own professional advisers before contemplating any investment. Octopus Investments Limited 20 Old Bailey, London EC4M 7AN T: F: Authorised and regulated by the Financial Conduct Authority. 2

3 Why Consider the Octopus Product Suite? Creates Business Opportunities Helps unlock funds/assets Revisit top clients Protects best clients Opens doors for professional connections Help demonstrate independence 3

4 Who is Octopus? One of the UK s FASTEST-GROWING retail fund managers Est OVER 3bn AUM 50,000 investor s supported 255 employee s fast-growing businesses 4

5 Session objectives By the end of this session you will have: An understanding of some key tax planning ideas The means of identifying clients who may benefit from tax planning solutions Some ideas to take to solicitors and accountants (CPD) 5

6 We lead in tax efficient investments 3x IFA brand recall in the tax space 1.2X Assets of any VCT competitor 1.5X Assets of any EIS competitor 8X Assets of any BPR competitor 6 For illustrative purposes only

7 Setting the scene for tax planning..

8 Quantifying the IHT problem. According to HMRC, IHT receipts increased by 13% in 2012/13 to 3.5 billion The nil rate band is frozen until 2018 at the earliest! IHT can have one of the most negative influences on clients wealth and presents a huge opportunity for value-added professional advice THE IHT PROBLEM CREATES A 7 BILLION OPPORTUNITY 8

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10 Octopus Inheritance Tax Service (OITS) Accelerated Discounted Gift Trust

11 Octopus ITS Overview KEY FEATURES Investee companies have been created with a lower risk business model BPR qualifying Unquoted trading company Qualifying trading activities No underwriting No age limit Access to the investment Choice of growth or income PERFORMANCE Targets 3% return p.a. on qualifying investments We will only take our management fees if we meet the targeted return of 3% per year Octopus will defer taking these fees until the client exits the product Track record: 3% return achieved every year since launch (2007) 11

12 Tax Planning Case Studies

13 Care Fees 850,000 of liquid assets following property sale 50,000 p.a. care fees expenses requirement 325,000 nil rate band available 14

14 Care Fees 325,000 invested with Brooks Macdonald 850,000 of liquid assets 150,000 invested in immediate needs annuity Total income of 50K p.a. 375,000 invested into BPR scheme with income 210,000 IHT liability on death No IHT liability after 2 years 15 For illustrative purposes only and assumes no gains or losses on investments

15 Power of Attorney/Deputy cases Client assets total 650,000 Dementia sufferer Enduring Power of Attorney registered Son and daughter appointed as attorneys Potential solution Nil Rate Band to Brooks Macdonald portfolio & excess to Octopus ITS Assets total: 650, For illustrative purposes only and assumes no gains or losses on investments

16 Power of Attorney cases: BPR can help POWER OF ATTORNEY Delegates to attorney to act on behalf of donor Can include investment powers RESTRICTIONS Gifting restrictions apply Placing a policy under trust for a third party constitutes a gift Court of protection approval required for planning POTENTIAL SOLUTIONS Attorney invests on behalf of donor in BPR solution IHT exempt after two years No gifting required Income stream available for donor Capital available for donor Capital preservation strategies available NRB to Brooks Macdonald 17 For illustrative purposes only and assumes no gains or losses on investments

17 Discretionary Trusts Client wants to place 1,000,000 in trust for his five grandchildren Invest Nil Rate Band with Brooks Macdonald He faces a 20% Chargeable Lifetime Transfer (CLT) if he gifts excess direct into discretionary trust ( 135,000) Trust 1,000, For illustrative purposes only and assumes no gains or losses on investments

18 Octopus Products: VCTs EIS

19 How do EIS and VCT s compare? EIS VCT INCOME TAX RELIEF MINIMUM TERM MAXIMUM INVESTMENT MINIMUM INVESTMENT DIVIDENDS GROWTH CGT DEFERRAL IHT EXEMPTION (BPR) LOSS RELIEF ACCESS WITHIN HOLDING PERIOD 30% 3 YEARS 1m (plus 1m carry back) 25,000 TAXED TAX EXEMPT YES NO MAXIMUM AFTER 2 YEARS YES NONE 30% 5 YEARS 200,000 5,000 TAX EXEMPT TAX EXEMPT NONE NONE NONE YES BUT LOSE THE RELIEF 20

20 Who might benefit from VCTs? EARNED INCOME Employed clients complement pension Remittanc e Tax Retirees who want flexible drawdown Landlords who can t use pensions Salary Rental Income VCTs offer tax relief on income from multiple sources Chargeabl e Event Bond Pension Dividends Business owners extracting profit SAVINGS INCOME 21 *Excluding deferred state pension (Finance Act 2005)

21 Tax relief product comparison Up to 45% tax relief No tax relief 30% income tax relief 30% income tax & other reliefs Pension Tax efficient ISA Tax efficient VCT Tax efficient EIS Tax efficient Income liable to tax Tax free growth/income Tax free growth & dividends Tax free growth 222 For illustrative purposes only

22 Case Studies

23 Tax Exempt Dividends 15,000 Tax Rebate 50,000 VCT Providing tax efficient income EXAMPLE 2,500 p.a. Dividend Target Equates to 7.14%p.a. on 35,000 net investment Equivalent to 11.90% for Higher Rate Taxpayer Equivalent to 12.98% for Additional Rate Taxpayer Could enable Brooks Macdonald to provide a more growth orientated or cautious portfolio? DIV DIV DIV DIV 24 For illustrative purposes only and assumes no gains or losses on investments

24 Tax efficient profit extraction Company Profits 60,000 Dividend paid 50,000 EIS/VCT 10,000 tax-free cash 15,000 additional tax liability 15,000 income tax relief 45,000 Net 50,000 invested in EIS/VCT 25 Assumes client is a 40% taxpayer For illustrative purposes only and assumes no gains or losses on investments

25 Tax relief can reduce assets at risk. 30,000 Tax Relief 100,000 VCT Investment 70,000 At Risk 26

26 or can increase investable assets 11,520 Tax Relief 11,520 ISA 38,400 Tax Relief 38,400 VCT Investment 128,000 VCT Investment 128,000 increased to 177,920 (+39%!) 27 For illustrative purposes only and assumes no gains or losses on investments

27 CGT deferral: property sale Buy-to-let property currently valued at 350,000 Purchased for 250,000 Would like to sell but CGT an issue ( 28,000) Ability to defer gains made in previous 3 years! Buy-to-let property 100,000 profit = 28,000 CGT 28 For illustrative purposes only and assumes no gains or losses on investments

28 Property sale (cont d) RETAIN PROPERTY SELL PROPERTY AND INVEST 100,000 GAIN IN EIS 350,000 PROPERTY FOR SALE 350,000 asset CGT of 28,000 (28%) deferred and IHT exempt after two years (40%) 30,000 income tax relief (30%) No diversification 280,000 invested with Brooks Macdonald (original cost + tax relief) After holding period can utilise 2 x annual CGT exemptions and repeat every year to wipe out gain CGT also dies with you! 29 For illustrative purposes only and assumes no gains or losses on investments

29 Surrendering Investment Bonds Client with a 300,000 onshore bond 75,000 taxable gain Client 40% tax payer Wants to move due to restricted investment choice and charging structure Doesn t want to suffer income tax on surrender 30

30 Surrendering Investment Bonds (cont ) 20% Income Tax on gain = 15,000 30% Income Tax relief = 15,000 = No income tax 300,000 Surrender Value 75,000 Gain SURRENDER BOND 50,000 EIS/VCT 250,000 Brooks Macdonald If EIS IHT exempt after 2 years 31 For illustrative purposes only and assumes no gains or losses on investments

31 Next steps Do you have any clients like these? Case involvement and seminars we re always happy to help We also have brochures, case studies, supporting materials and reasons why for our products in both hard and electronic versions Dominique Butters, Senior Business Development Manager t: e: 32

32 Thank you 33