Investments

Question 1

Collective Investment Funds

Answer 1

• Better diversification
• Reduces risk/volatility
• Group of negatively correlated funds
• Professional management/expertise
• No CGT on internal fund changes within OEIC
• Cost effective
• Funds can match ATR
• Wide choice/ passive/active/Discretionary
• More predictable income stream
• Simple tax reporting
• Less administration/platform/easier to sell/switch/reinvest divs/rebalance
• Easier for bed & ISA

Question 2

Investment Bonds (onshore)

Answer 2

• Can invest as per ATR/asset allocation
• Can receive 5% of original capital each year
• Tax deferred
• Can accumulate 5%s if not taken (cumulative withdrawals)
• Last for 20 years, until full capital returned
• BRT paid internally
• Top slicing may be applicable
• Tax efficient form of income as Julie breaching HRT band
• Could assign to children in future, when they’re BRT payers
• Or wait to encash until retirement when Julie may be a BRT payer
• Place to put excess cash holdings
• Wide choice of investments/diversification
• Growth potential/inflation protection
• Cash not currently earning enough
• Could assign to a trust for children’s benefit
• Not considered in long term care assessments

Question 3

Client specific issues with investing cash proceeds from divorce

Answer 3

• ATR, medium to high risk investor, but lower capacity and tolerance for loss post divorce
• Objectives in terms of growth/income
• No debts/mortgage free
• Income requirement now/retirement
• Fund on deposit/emergency cash
• Balance risk of the AIM portfolio
• Stability of current income streams/maintenance payments ongoing
• Already using up dividend allowance – capital growth instead to use CGT Allowance?
• Contributions to pensions/annual allowance/tax relief/income tax relief to remove HRT liability
• Current safety/protection of cash/FSCS
• Ethical considerations/ESG investing/what issues are important to Julie
• Timeframe/term/liquidity requirement
• Use of tax wrappers – Julie’s not used ISA allowance/not using full pension annual allowance
• Inflation/growth expectations/current market conditions
• Lack of income protection

Question 4

Key info on existing pensions when reviewing suitability for retirement planning

Answer 4

• Costs/charges
• Any safeguarded benefits/enhanced TFC/GARs
• How wide the fund range is to choose suitable investments/diversification
• How many funds can be invested in at one time
• Retirement options/PMP/FAD/UFPLS/Annuity
• Death benefits
• Performance of investments within pension
• Volatility of investments within the pension
• Online access available
• Costs for fund switching
• Contribution history/carry forward
• Any life cover included?
• Target retirement income

Question 5

Bond in Trust to provide tax efficient benefits

Answer 5

Discretionary Trust
CLT
No IHT - under NRB
O/s estate after 7 years
Annual gifting allowance available
Periodic/Exit Charges - unlikely depending on amount
Trustees retain control
Protection for children (bankruptcy/divorce)
Beneficiaries can be amended
Assignment is not chargeable event
If not for money's worth
Non-incoming producing asset
Low admin/no TTR/tax efficient