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Important information

This presentation is provided to you by Zurich Intermediary Group in your capacity as a financial services industry professional. It must not be made available or copied or otherwise quoted or referred to in whole or in part in any way, including orally, to any person without our express written permission, which we may, at our absolute discretion, grant or withhold or grant subject to conditions, including conditions as to our responsibility. We accept no duty or responsibility, and we disclaim all liability whether in contract, tort (including negligence) in respect of this material but this sentence does not exclude any liability which by law cannot be excluded.

For intermediary use only – not for use with your clients

Tax Wrappers & Taxation

– taxation considerations when giving investment advice Andy Woollon, Dip PFS Strategic Partner Specialist

For intermediary use only – not for use with your clients

Transfer of risk onto the individual

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Mind the gap…..tax matters!

Government investing almost £1bn to increase tax compliance

Source: HMRC – Levelling the tax playing field – March 2013

For intermediary use only – not for use with your clients

But are clients disclosing investments correctly?

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Sources of “income”- minimizing tax liability

E.g. Mortgages / Loans / Credit cards Borrowed Capital E.g. OEICs / UTs E.g. 5% Inv-bonds / structured deposits E.g. ISA Income deferred liability Income immediate liability Tax Free Income less tax payable E.g. Deposits / Yield from OEICS / UTs E.g. PAYE income, pension, shares For intermediary use only – not for use with your clients

Personal tax computation order

5 th – Capital Gains 2 nd – Savings 4 th – Chargeable Event Gains 3 rd – Investment e.g. Dividends Ignoring National Insurance and indirect taxes/traps 1 st – Non Savings Personal Allowance / Age Allowance For intermediary use only – not for use with your clients

Discombobulated?

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Learning Outcomes

By the end of this session you will be able to explain how: the taxation of different investment products and funds affects advice to different age and income groups; the Budget changes to the ISA allowance, other investment options and taxation allowances will impact on investment decisions; to make effective use of the various tax allowances, whilst avoiding tax traps that can reduce client returns.

Knowledge is .…. opportunity For intermediary use only – not for use with your clients

Taxation of tax wrappers & assets

For intermediary use only – not for use with your clients

Wealth and income lifecycle

Schoo l College & tertiary Career building years Nil Income Nil to Low Income Modest Income and Low Capital Accumulation Prime High Income and Capital Accumulation Retirement & Estate Planning Low to Medium Income* and Wealth De-accumulation *May have a need for higher income for Care Home fees

Matching assets and tax wrappers

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Advice process

Clear picture of current position Future relationship strategy Report of solutions advised and actions taken T A X Tax wrapper selection?

Understanding of current value and worth Establishing long term goals Implement solutions Strategy plan For intermediary use only – not for use with your clients

Key facts to consider…

Fund choice & switching Assignment & account designation Tax traps Asset type & performance Education funding Income withdrawals & CGT Legislation changes Age Death & ill health Customer tax & investment amount Customer charges IHT planning & trusts Self assessment Adviser charging Admin & online capability Care home fees planning For intermediary use only – not for use with your clients

Main tax wrappers

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Tax and onshore bonds

UK investment bond – fund and investor taxation

Gains Dividends Interest/Rent 20% within fund after indexation relief and expenses Within fund, received net of 10% or 20% tax credit Within fund, received net of 20% Pays 0%, 20% or 25% of net gain NT/SRT no reclaim No further liability No further liability

Tax and authorised investment funds

UK unit trust / OEIC – fund and investor taxation

Gains Dividends Interest/Rent No tax within fund Within fund, received net of 10% or 20% tax credit Within fund, received net of 20% Pays 18% or 28% on gains over exemption Pays 0%, 22.5% or 27.5% additional tax Pays 0%, 20% or 25% additional tax NT/SRT can reclaim

Calculating capital gains

Establish current year gain Minus current year loss Deduct Capital Gains Tax Annual Exemption Elect whether to utilise carry forward losses = Net taxable gain

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Calculating the CGT rate

Net Gain @ 28% Higher Rate Net Gain @ 18% Basic Rate Basic Rate Tax Threshold Taxable Income For intermediary use only – not for use with your clients

Tax and onshore bonds

Offshore bond – fund and investor taxation

Gains Dividends Interest/Rent No tax within fund UK dividends received net of 10% tax credit No tax, received gross Pays 0%, 10%, 20%, 40% or 45% of net gain No further liability No further liability

Wrapper allocation

National Savings ISA Pension Onshore Bond Offshore Bond UK Unit Trust / OEIC Tax- Free Growth Limited Amounts Tax Efficient Growth Limited Amounts Income not Taxed Tax Efficient Growth Limited Amounts Tax Relief on Contributions Tax- Free Cash Sum Income Taxed as Earned Income Life Fund Tax in fund HRT/ART on exit 5% a year Tax Deferred Top-slicing relief Gross Roll Up Tax at highest marginal rate 5% a year Tax Deferred Top-slicing relief Time Apportionment Relief No Tax in Fund CGT on disposal Income Taxed at highest marginal rate For intermediary use only – not for use with your clients

Tax efficiency

Investment Bonds 5% Tax-deferred Collectives Capital Gains exemption NISA Yielding Funds / Deposits Non-Yielding Funds Fixed Interest / Property Savings rate band Personal & Age-related Allowance Deposits Fixed Interest Yield Offshore Bond Gains For intermediary use only – not for use with your clients

Handset Question 1

Do you have clients invested in UT/OEIC funds who may not fully understand the taxation implications and risk not fully disclosing all income to HMRC?:

Yes – press 1 No – press 2

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Budget 2014 update

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The New ISA (NISA)

JISA and CTF for under 16’s – stocks & shares or cash – up to £4,000 NISA for 16-18 year olds – cash only – up to £15,000

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NISAs – extra appeal?

Increased flexibility on transfer: Cash to Stocks & Shares and vice versa Switch within the existing wrapper Extension of eligible assets: Starting / Basic rate taxpayers Higher / Additional rate taxpayers Tax traps – Age/Personal allowance, Child Benefit NISA vs Pension alternative?

For intermediary use only – not for use with your clients

Allowance and taxation changes

Personal allowance Age-related allowance <75 Age-related allowance >75 Age-related income limit 6/4/2013

£9,440 £10,500 £10,660 £26,100

6/4/2014

£10,000 £10,500 £10,660 £27,000

Starting rate band at 10% Starting rate band at 0% Basic rate tax band Higher rate tax threshold Annual CGT exemption

£2,720 £32,010 £41,450 £10,900 £2,880 £31,865 £41,865 £11,000

6/4/2015

£10,500 £10,500 £10,660 TBC £5,000 £31,785 £42,285 £11,100 Source: HMRC

Starting rate for savings income

New 0% starting rate for savings income from 6th April 2015 Starting rate band for savings income increases to £5,000 Band reduces proportionately for any non-savings income above personal allowance, as per current practice No tax payable if non savings and savings income is less than £15,500 Savings income = deposits, fixed interest yield and offshore bond gains Potentially beneficial for pensioners with savings or income from fixed interest funds, and investors with gains from offshore bonds

Starting rate for savings income

Example – from April 2015 –

Sheila age 60

Part-time job at DIY store Personal allowance Taxed at 20% on

Deposit interest

of £400 net (£25,000 * 2%) £12,000 £10,500 £1,500 (£500 gross) Total gross income £12,500 Total income is below £15,500 (personal allowance + starting rate band)

Can apply for tax-free savings with form R85

Source: HM Treasury fact sheet - Abolishing the 10% rate of tax on savings income

Starting rate for savings income

Example – from April 2015 –

Derek age 60

Pension Personal allowance Taxed at 20% on £3,500 £14,000 £10,500

Fixed Interest yield

of £2,000 net (£2,500 gross) (£62,500 * 4%) Total gross income £16,500 Total income is above £15,500 (personal allowance + starting rate band)

Cannot apply for tax-free savings – but can claim back the tax on £1,500 of the Fixed Interest yield with form R40

Source: HM Treasury fact sheet - Abolishing the 10% rate of tax on savings income

Starting rate for savings income

Example – from April 2015 –

Ronald age 75

Pension Personal allowance No tax is due £10,000 £10,500

Offshore bond gains

of £5,500 gross (£55,000 gain / 10 years) Total gross income £15,500 Total income is below £15,500 (personal allowance + starting rate band)

No tax payable on offshore bond encashment

Source: HM Treasury fact sheet - Abolishing the 10% rate of tax on savings income

Mind the tax traps!

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The tax traps

70 60 50 40 30 20 10 0 Income £

Adjusted Net Income

Earned income Savings / Investment income Pension / Trust income Chargeable gains (full gain) Less Gift aid payments = Adjusted Net Income Pension contributions (gross) Trading losses

Age allowance trap – 2014/15

£1,000 £27,000 income limit 30% Marginal Rate £17,500 Basic rate tax @20% = £3,600 £500 £10,000

£10,000 personal allowance only, as £500 of 65-74 age allowance lost on a 2 for 1 basis on income over £27,000

For intermediary use only – not for use with your clients

Personal allowance tax trap – 2014/15

For each £2 of adjusted net income over £100,000 the personal allowance reduces by £1 £121,000 £118,880 £100,000

60% effective tax rate

Tax year 2013/14 £120,000

60% effective tax rate

£100,000 Tax year 2014/15 £ 100,000

60% effective tax rate

Tax year 2015/16

Personal allowance tax trap – 2014/15

Client with £120,000 adjusted net income OR Income over limit £20,000 Lost personal allowance £10,000 Income taxed @ 40% = £8,000 tax 60% tax Lost allowance taxed @ 40% = £4,000 tax Amount in bank

= £8,000

Make a £20,000 gross pension contribution

£10,000

Reduction in bank £8,000 Amount in pension

= £20,000

Higher rate tax threshold trap

1.1 million extra higher rate taxpayers*

Source: HMRC and IFS*

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Child Benefit tax trap – 2014/15

For each £100 of adjusted net income over £50,000 the child benefit reduces by 1% £50,000 Income Tax 40% £4,000 Child Benefit tax charge £1,066.00

Income Tax 40% £4,000 Child Benefit tax charge £1,770.60

Income Tax 40% £4,000 Income Tax 40% £4,000 Child Benefit tax charge £2,475.20

Child Benefit tax charge £3,179.40

£10,000 £10,000 £10,000 £10,000 £60,000 Bank Bank Bank Bank

Child Benefit tax trap – 2014/15

Client with £60,000 adjusted net income OR Income over limit £10,000 Lost child benefit (2 kids) £1,770.60

Income taxed @ 40% Lost child benefit = £4,000 tax = £1,770.60

57.70% tax Amount in bank

= £4,229.40

Make a £10,000 gross pension contribution

£10,000

Reduction in bank £4,248 Amount in pension

= £10,000

Maximising use of allowances

How much could an individual invest at 4%pa net, and by only using their 2015/16 personal allowance, starting rate band for savings income, NISA and annual CGT exemption, not pay any Income Tax?

£117,500 2.

£217,500 3.

£317,500 4.

£417,500

Approximately £417,500

For intermediary use only – not for use with your clients

Fully utilised allowances can be valuable

Allowance type & amount in Equivalent investment 2015/16 amount (@4% net return*)

Personal allowance 0% savings rate band £10,500 £5,000 Nil – assumed offsets pension income

£125,000 * Income Tax payable

Nil Nil NISA allowance £15,000

£15,000

Nil Annual CGT exemption £11,100

Total = £277,500 *

(in zero yielding funds)

£417,500

Nil (and no CGT)

NIL

Other sources of untaxed ‘income’ may include existing ISAs and tax-deferred withdrawals from investment bonds

Platforms can facilitate use of multiple wrappers

Investment Account Investment Bond ISA PLATFORM Other Pension Funding Pension Income For intermediary use only – not for use with your clients

Treating Customers Fairly

Outcome 1 Consumers can be confident that they are dealing with firms where fair treatment of customers is central to the corporate culture.

Outcome 2 Products and services marketed and sold are designed to meet the needs of identified consumer groups and are targeted accordingly.

Outcome 3 Outcome 4 Outcome 5 Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

Where consumers received advice, the advice is suitable and takes into account their circumstances.

Consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard as they have been led to expect.

Outcome 6 Consumers do not face unreasonable post-sale barriers imposed by firms to change products, switch provider, submit a claim or make a complaint. For intermediary use only – not for use with your clients

Handset Question 2

Do you have any of the following client types that may benefit from further advice around allowances and taxation:

older individuals looking to fully utilise their allowances; those investing into income-producing funds, but not doing a tax return; high earners potentially caught by tax traps; clients expecting their tax rate to reduce in future; those already fully using their annual CGT exemption.

Yes – press 1 No – press 2

For intermediary use only – not for use with your clients

Next steps

Visit: www.zurichintermediary.co.uk

Call:

Technical Support Team on 0870 6092178

Review and segment your clients:

Those who are older and/or have deposits Actively use their ISA allowance By income levels or tax/trap thresholds HRT who don’t want to lose child benefit

Contact your Zurich Partnership Development consultant for:

Details of our Platform and associated funds and features Details of our range of Adviser Tools Sterling Flexible Bond information 45

Handset Question 3

Would you like a Zurich Partnership Development Consultant to contact you regarding the support available?

Yes – press 1 No – press 2

For intermediary use only – not for use with your clients

Thank you for listening

Important information

change in the future Zurich Intermediary Group Limited. Registered in England and Wales under company number 01909111 Registered Office:The Grange, Bishops Cleeve, Cheltenham, GL52 8XX. Telephone no. 0500 546 546.

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