UK news: Wealth planning opportunities in the current environment

Recent events have given rise to high levels of market volatility, driving down asset valuations and causing the government to intervene with measures few would have expected. Given the current environment and the time of year, what actions can you consider?

Planning opportunities in the current environment

Assets

Whilst asset prices are low, now is potentially the ideal time to consider:

  • Whether the ownership structures you have in place continue to be the most efficient.
  • Whether there is an opportunity to use lower valuations to make future savings in relation to, say, Estate Planning.

What are the potential benefits?

  • Lower potential tax on transferring assets to alternative structures.
  • Estate Planning – benefiting from lower current valuations.
  • Asset protection and structure diversification.
  • Family governance for the next generation.

What are your options?

You may own assets in a way that was right for you when the asset was first acquired. However, as circumstances change the original strategy could perhaps be refined, but the tax cost of doing so may be significant.

1. Transferring assets to spouses

  • There is a basic strategy that most married clients could consider – such as transferring assets to a lower earning spouse to potentially help reduce their overall income tax liability. However, this does little to help with future capital gains, where the amounts involved are often much greater. Because spousal transfers are deemed to take place on a no gain/no loss basis, the original base cost is simply transferred to the recipient of the transfer
  • It is of course impossible to predict when the markets will recover. But transferring assets standing at a gain (which some months ago had a significantly higher valuation) to a structure to lock in the current valuations may provide future savings.

2. Transferring assets into alternative structures

  • Taking the simplest example of transferring assets into an ISA or a SIPP, a disposal would be triggered for capital gains tax purposes, but future gains, arising within the ISA or SIPP would be free of tax
  • Transferring assets to a new ownership structure – such as an open-ended investment company (OEIC), investment company or an offshore insurance bond – will rebase the value of the asset for capital gains tax purposes and can provide you with some level of control over when income tax and capital gains tax are paid in the future.

    a. Insurance Bonds
    Structures such as insurance bonds offer tax deferral, with any gains and income rolling up mostly tax free within the bond. They are best suited to income producing assets, such as non-reporting funds, which are chargeable to income tax. This is because any profits realised from an insurance bond are chargeable to income tax.

    b. Investment companies
    Investment companies have been used by families for decades to manage and transition their wealth (following a change in their taxation under the Thatcher government). Gains and income (other than most dividends which are not liable to tax within the company) are liable to Corporation Tax at a slightly lower rate than Capital Gains Tax. However, care is required in ensuring the position is fully understood following professional advice (particularly as HMRC have formed a specialist unit that is reviewing how investment companies are used by wealthy families to manage their assets).

Personal circumstances will dictate which approach is most appropriate, and all planning comes at a cost, both in terms of advice, but also the future tax position.

Find out more about your options by speaking with your Relationship Manager or Investment Counsellor.

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