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  • Writer's pictureSara White

Lack of tax-efficient investment advice for taxpayers

Updated: Mar 21

Despite frozen tax thresholds and more taxpayers paying higher rate tax, only 40% of advisers offer specialist advice on tax-effective investments

Sara White, Editor, Accountancy Daily


Ramping up tax advice would increase opportunities for advisers to demonstrate their expertise and grow their businesses, as well as retain clients.


Only four out of 10 advisers routinely explain the benefits of tax efficiency on investments, HSBC Life research has found, although the majority (82%) of their clients are higher rate or additional rate taxpayers and would benefit from effective tax planning.


The number of taxpayers falling into higher rate tax bands is set to grow significantly as the government has frozen tax thresholds until 2028 creating the highest ever tax burden.


The research, The Three I’s of Investable Capital, found currently 50% of surveyed advisers’ clients are higher rate taxpayers while nearly a third (32%) are additional rate taxpayers.


Clients rate taxation as second only to inflation as the biggest threat to their invested capital and future financial wellbeing. However, research showed that 39% do not routinely discuss the benefits of tax efficiency in relation to investments with clients.


Only 27% of clients questioned said advisers routinely discuss the tax efficiency of investments. Almost all (98%) advisers questioned said they believed tax efficiency on capital investments was important to clients while just slightly fewer (96%) of clients said the same.


Not routinely discussing tax efficiency on investments may partly explain why basic tax allowances are not being used in full – the research found advisers estimate that on average 52% of clients fully use the ISA allowance and 47% the pension investment allowance. The study found just one in five (20%) clients fully understand how insurance-based bonds work.


Mark Lambert, head of onshore bond distribution, HSBC Life (UK), said: ‘The proportion of clients who are additional rate or higher rate taxpayers will inevitably increase as a result of frozen thresholds, allowances, and exemptions and continuing wage inflation.


‘These drivers point to the fact that clients are more likely to want and need advice on tax effective investment.


‘This represents an opportunity to help to promote the benefit of tax allowance optimisation through regular tax health checks. Despite high client concern about inflation and interest in tax efficiency, advisers believe a relatively low percentage of clients know about or use key strategies.’


HSBC Life (UK’s) report highlights how capital investments can be structured to achieve intergenerational and estate planning, as well as the role of initial and ongoing advice in ensuring the best outcome from the investment of capital and the potential future tax treatment of capital investments. There are details on the tax implications for a long list of investment options, with handy comparisons between different routes.


Onshore bonds offer zero tax on cash dividends at a policyholder level while non-dividend income is taxed at 20%. Gains within the bond are subject to UK life fund taxation which means that the policyholder is treated as having paid basic rate tax on these gains.


Top slicing relief and 5% per annum. tax deferred rules on withdrawals remain. Lifetime transfers by way of assignment where there is no exchange of money or money’s worth are not taxable events and basic rate tax credit in determining policyholder tax on realised chargeable gains continue.


The HSBC Onshore Investment Bond, a tax effective medium to long term lump sum investment wrapper, can be accessed with a minimum investment of £15,000 providing the potential for capital growth while still allowing clients to make withdrawals from their investment. It offers clients access to around 3,800 funds via open architecture.


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