"Wealth" Management

Nanpy · 30 August 2015 at 9:44AM

So a few weeks ago I posted here about what to do with a large-ish lump sum acquired after the sale of a family business.

I was virtually decided to throw it all into a Vanguard Lifestrategy fund and let it do it's work but Dunstonh opened my eyes.

So in the meantime me and my siblings have all gotten some advice, but honestly are none the wiser.

On the one hand, a well-known accounting/auditing firm who we dealt with for YEARS but haven't been particularly impressed with recently are saying put it all into an offshore drawdown fund, pull out 5% a year tax free, maximise your ISA and bish bash bosh, that'll be a 0.5% charge.

On the other hand, there's a hundred year old "wealth management" firm with a storied, scandal-ridden past, who're talking about cycling CGT, optimising savings income, utilising spouses and generally being "creative", but they want a 1% charge. They say we'll save their fee in tax mitigation. I told them I'm not interested in utilising any taxation exploits, they say they aren't either - and their Wikipedia page would suggest they're not keen on having another spotlight shone on them.

As an aside, option A, who we know, would've cost us around half a million quid CGT when we sold the business because they were ultra-cautious and actually forgot that the business had a "cost" to begin with. This isn't really relevant to the situation, since we're dealing with different people, but if anyone happens across this in a Google Search, always get outside advice.

I don't, in theory, mind paying tax because we have a pretty good set-up in the UK and taxation pays for it. OTOH if there are legitimate ways to minimise tax I feel I should take them to benefit my nieces and nephews down the line. I kinda feel like the offshore drawdown is a loophole that should be closed, but one that so many people and especially pensioners use (including my mum) that it's unlikely to change.

Long story short, is the boring, virtually, high street, option with the lower charges going to balance out the more comprehensive but more expensive service from the company who will probably crop up in a Dan Brown novel some day?

I know this is outside the normal scope of the forum, but you have to understand, my circumstances are extraordinary, but I am, personally, extremely ordinary and this is pickling my brain. I have met SO MANY people in suits over the last six months. I'd love to hear opinions from people who have gone through the same thing.

DesG · 30 August 2015 at 10:10AM

I read back to see what the amount was, 500Kish. Is that belonging to one person or a couple?

A couple will have double CGT/ISA/pension allowances to get things tax sheltered faster.

Any children to fill JISA/ISA's for?

dunstonh · 30 August 2015 at 10:41AM

Offshore bonds do not suffer capital gains tax and do not suffer income tax until the end. So, you do get the benefit of gross roll up. However, offshore bond charges tend to be higher.

Using an general investment account and utilising annual CGT allowances and bed & ISA can reduce CGT (and even remove it if you moved the full ISA allowances jointly each year) which would then later provide the bulk or all of your investments in an ISA which would allow a tax free income to be drawn.

Both options are viable. Although I would normally swing to the general investment account and bed & ISA (and possibly bed & pension) each year. Not quite as tax efficient in the early years but more tax efficient in the later years.

I kinda feel like the offshore drawdown is a loophole that should be closed, but one that so many people and especially pensioners use (including my mum) that it's unlikely to change.

Its been around for decades. Trusts used with them have been changed but the actual offshore bond hasnt. I would be concerned about taking 5% withdrawals and paying the adviser charge from the product. With RDR (changes in 2013), the adviser charge uses up part of the 5% deferral allowance. So, if you are being charged 0.5% and take 5% then it would create a chargeable event and completely negate the benefit of the offshore bond.

You have focused on two larger firms. Most advisory firms are smaller with 1-5 advisers where you can use an adviser who is likely to be there for the rest of their working life. Especially if you get the director/partner/owner adviser. Larger firms tend to suffer greater turnover of staff and tend to be more expensive as the fee you pay has to be shared to that adviser and the owners. Did you get to chat to a smaller local firm?

Aegis · 31 August 2015 at 5:05PM

Nanpy wrote: »

So a few weeks ago I posted here about what to do with a large-ish lump sum acquired after the sale of a family business.

I was virtually decided to throw it all into a Vanguard Lifestrategy fund and let it do it's work but Dunstonh opened my eyes.

So in the meantime me and my siblings have all gotten some advice, but honestly are none the wiser.

On the one hand, a well-known accounting/auditing firm who we dealt with for YEARS but haven't been particularly impressed with recently are saying put it all into an offshore drawdown fund, pull out 5% a year tax free, maximise your ISA and bish bash bosh, that'll be a 0.5% charge.

Starting point should be to discuss setting up a standard onshore investment portfolio then discuss the options in addition to that. As described, the strategy seems overly simplistic - you probably shouldn't be putting everything into an offshore bond.

They've also not explained it well to you, as offshore bond withdrawals are not tax free. In fact what you are allowed to do is draw out a proportion of your initial capital each year, which results in a tax deferred income. You will eventually pay tax on those withdrawals, just not now.

On the other hand, there's a hundred year old "wealth management" firm with a storied, scandal-ridden past, who're talking about cycling CGT, optimising savings income, utilising spouses and generally being "creative", but they want a 1% charge. They say we'll save their fee in tax mitigation. I told them I'm not interested in utilising any taxation exploits, they say they aren't either - and their Wikipedia page would suggest they're not keen on having another spotlight shone on them.

To be honest that doesn't sound creative, it sounds like exactly what you would expect from a decent financial planner. You should be using some tax "exploits" (for want of a better word) because this would include ISAs, pensions and offshore bonds, all of which are perfectly reasonable for someone with a decent level of wealth to their name.

I assume the 1% is per annum? If so, it's potentially expensive if this doesn't include the investment costs but it could be somewhat reasonable depending on the strategy you want and the size of the investment portfolio.

As an aside, option A, who we know, would've cost us around half a million quid CGT when we sold the business because they were ultra-cautious and actually forgot that the business had a "cost" to begin with. This isn't really relevant to the situation, since we're dealing with different people, but if anyone happens across this in a Google Search, always get outside advice.

Agreed - hopefully they also explained Entrepreneur's Relief to you correctly and will apply for that on your behalf!

I don't, in theory, mind paying tax because we have a pretty good set-up in the UK and taxation pays for it. OTOH if there are legitimate ways to minimise tax I feel I should take them to benefit my nieces and nephews down the line. I kinda feel like the offshore drawdown is a loophole that should be closed, but one that so many people and especially pensioners use (including my mum) that it's unlikely to change.

It's not actually a loophole, it's just a return of capital. Offshore bonds can be very useful for allowing you to pay investment tax in a year more suitable for your requirements, but they don't make the liability go away altogether. It's basically a system allowing you to pay your tax in a smaller number of years rather than every year you own the assets.

Long story short, is the boring, virtually, high street, option with the lower charges going to balance out the more comprehensive but more expensive service from the company who will probably crop up in a Dan Brown novel some day?

Difficult to say without knowing your circumstances more closely. I have clients in a similar situation to your own for whom I have arranged investment management and tax structures, and their total annual fees fall between the two figures you mentioned above, including all investment costs, my own fees and the product wrapper fees.

I know this is outside the normal scope of the forum, but you have to understand, my circumstances are extraordinary, but I am, personally, extremely ordinary and this is pickling my brain. I have met SO MANY people in suits over the last six months. I'd love to hear opinions from people who have gone through the same thing.

If you aren't comfortable with either (which it sounds like you aren't) then see some more options and find someone you prefer.

joerugby · 31 August 2015 at 7:20PM

My wife and I have gone through the same thing with roughly the same amount of money after selling shares in my business as well as a house when we retired eight years ago.

Our core income comes from pensions and an annuity. This is supplemented by investment income.

We are currently 73% invested in equities (uk and global equity income funds which pay around 4% net of basic rate tax) and 27% cash (paying around 1.7% gross). About 55% of this is ISA-wrapped, increasing with annual Bed and ISAs.

So far we have paid no CGT, nor do we expect to, although on occasions we have come close. We also pay no income tax on our unwrapped income due to Mrs Joe's tax status. We will need to review this with the new dividend tax from next April.

The value of our investments has gone up and down, mostly up until July this year but we are still well ahead of where we started, and our income is quite satisfactory.

We selected our own portfolio starting with Invesco Perpetual High Income and Newton Global Income, then expanding as we did more research into around 20 funds most of which we still hold today. The platform we use is Hargreaves Lansdown and they charge us 0.25% i.e. significantly less than their normal fee. In our opinion their service is excellent, and their provision of information is also good.

I read FT Money from cover to cover every Saturday and HL and other websites daily to check market trends but we tend to rebalance no more than once or twice per year.

Overall we are pretty happy with where we are. We are enjoying retirement.

"Wealth" Management

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