IFA Charges

EdInvestor

jamesd wrote: »

The poster here is talking about a 200,000 investment and moving investments with a gain of just 5% since purchase will exceed their capital gains tax allowance if they are doing it outside a wrapper of some sort.

You only pay CGT if you actually make a gain by selling an investment which has gone up in value.There is an annual allowance of 9,200 quid of tax free capital gains,quite generous.

That's completely avoidable if they do it inside an investment bond

It's also completely avoidable if they don't sell their funds.

.. and you surely know that moving money between investments is necessary for reasons like changed manager or switching to a fund more suitable for the economic climate. I wouldn't be surprised to see half of the investments moved for good reasons like those in just one year.

It often seems that people's money is "churned" between different funds so that the managers can charge more in hidden transaction costs.There's no actual need to be trading all the time.

It's also worth noting that any capital gains in an investment bond attract 20% tax.There is no CGT allowance as there is outside the bond.

For most people the bond makes investing more expensive, because they pay higher taxes on gains and more charges to the industry. In addition there are penalties for withdrawal which can cause major losses if you need to get your money out in the first few years.

Avoid.

dunstonh

It's also completely avoidable if they don't sell their funds.

And by doing that the gain gets bigger and bigger and the CGT tax bill with it when you do eventually sell.

It's also worth noting that any capital gains in an investment bond attract 20% tax.There is no CGT allowance as there is outside the bond.

Only if the assets are liable to CGT.

For most people the bond makes investing more expensive, because they pay higher taxes on gains

Or lower taxes

In addition there are penalties for withdrawal which can cause major losses if you need to get your money out in the first few years.

Often able to withdraw 10% p.a. without charge and you get given money upfront with a bond. £200k would be looking at 7.5% straight away. So, its only fair you pay some of that back. However, there are bonds with no tie in whatsoever.

Avoid.

Let me finish that. Avoid Ed's comments as they are wrong.

lol...haven't posted on here in ages because i got fed up with people stating their (incorrect) opinions as fact............looks like nothings changed :rolleyes:

Hi Tiggs. Yes, Ed is still posting her rubbish on this. Obviously she has never seen the benefits of top slicing relief. Of course, that would make bonds look good and that just wouldn't fit. For reference to those that are more recent to the board, Tiggs is an adviser that deals a lot with inheritance tax reduction and investment bonds have been key in saving a fortune in inheritance tax.

Unfortunately, the board has lost a number of advisers over the years because of their frustration dealing with Ed and the continued misinformation or misrepresentation of information.

They can also be useful in not being included in local authority care means testing. Not included in the pension credit means test. They don't reduce age allowance. They don't have any personal CGT liability. They are convenient as you can switch funds free of charge without worrying about creating a CGT liability. You can draw natural income or fixed regular withdrawals offset against natural income and growth. You can avoid higher rate tax on them by using deferment rules. Modern bonds are also very cheap with better reduction in yields than unit trusts. Bonds can utilise trusts, useful for estate planning. Plus more.

They are not right for everyone and like any product there are good versions and bad versions. However, you don't measure the good versions by the bad (unless you are Ed). Typically, bonds are best suited for those with more than £100k to invest (although exceptions exist).

dunstonh

£100/hour for research into how to do their job + 4% commission.. that's having your cake and eating it.

That isnt correct. Fee basis means no commission. Not both. It is likely an either or option.

---

BTW, here is the classic thread on the board from almost a year ago where you see the same comments being made by Ed and the same arguements back.

http://forums.moneysavingexpert.com/showthread.html?t=288247&page=2&highlight=edinvestor+inheritance+tax+investment+bond

Note, the OP on that thread is looking for IHT reduction. Post #25 from Ed is a good read as that recommendation could see the OP lose nearly £200k in IHT as well as pay higher charges and face annual CGT bills along as well as requiring buy and selling each year (further increasing charges) and probably seeing the removal of the age allowance and possibly moving the OP into higher rate tax. A recommendation that is costing hundreds of thousands of pounds all because an IFA was going to earn round £18k from it (too much in my opinion by £18k is till better thant than a couple of hundred. Not if you are Ed though. Better you pay £200k to HMRC than 18k to an IFA).

Whilst it isnt the same scenario, its gives you the background that shows Ed's complete lack of knowledge in this area and the dangers of someone unqualified with poor knowledge telling you to disregard the advice of someone that knows your situation and is liable for the advice they give.

dunstonh

I read that as a typo because fee basis is instead of commission. Its an FSA rule regarding IFAs (and only IFAs. It doesnt apply to whole of market advisers, multi-tied advisers or tied agents). So, unless the adviser is not an IFA but one of the others pretending to be, it is likely to be an either/or.

jamesd

EdInvestor wrote: »

You only pay CGT if you actually make a gain by selling an investment which has gone up in value.There is an annual allowance of 9,200 quid of tax free capital gains,quite generous.

It's a pittance when you're investing 200,000. Grow by say the 12% that a half decent UK equity income fund may return each year on average and you have a gain of 24,000.

Not selling isn't a good option because managers move, fund performance changes and the part of the economic cycle you're in changes. This isn't churning, it's adjusting your investments based on real changes in their likely performance and the investment climate.

Now roll forward by a few years of that higher than inflation growth and that CGT allowance growing at inflation or less looks even less significant.

Tiggs, nice to see some adviser variety here. If only for variation in who's saying that EdInvestor is wrong in this area.

EdInvestor

Investment bonds are the cause of the second largest number of misselling complaints to the Ombudsman after endowments.

I wonder why? :rolleyes:

On the tax question, gains in investment bonds are subject to 20% insurance company corporation tax, which is not reclaimable and attracts no allowances.

Gains outside an investment bond are subject to CGT only if you sell but have an annual allowance of 9.2k (double for a couple).If you need income, then it is easy to sell 9.2k's worth of gains once a year (18.4k for a couple) and pay no tax.

As dividend income is effectively tax free for basic rate taxpayers, there is no need to pay any tax at all. And there is certianly no need to go in for elaborate and expensive insurance products to wrap around your investment so the advisor and the insurance company can make more money by paying you pack your capital (which is what these withdrawals represent.)

After all you could do that yourself, just put the money in the bank and withdraw it when ever you need it, there's no tax on spending your capital.

And nor need there be any tax on spending your income.But there will be if you use an investment bond. .

People can make up their own minds about the value of these products if they are given the facts.But as is clear on this thread, they often are not given the full picture.

Hence the misselling complaints, one assumes.It was exactly the same with endowments years ago.

dunstonh

Investment bonds are the cause of the second largest number of misselling complaints to the Ombudsman after endowments.

I wonder why? :rolleyes:

Precipice bonds, guaranteed equity bonds and with profits bonds. Not unit linked investment bonds. Plus you need to put it in context. 4541 complaints last published year covering all types of bonds. Although the FOS dont split the type, you would expect unit linked SPIBs to be a minority. PEP/ISAs had 780. Every product type gets complaints. Indeed, it is quite possible that unit linked SPIBs got less complaints than PEP/ISAs.

The FOS had over 700,000 complaints in the last published year. 59% of complaints were rejected.

As investment bonds can invest in the very same funds people use with their ISAs and unit trusts, then you must be saying that ISAs are wrong as well. After all the investment bond is just a tax wrapper. Nothing else.

On the tax question, gains in investment bonds are subject to 20% insurance company corporation tax, which is not reclaimable and attracts no allowances.

Gains which are chargeable to CGT are charged 20%. Not all gains are chargeable.

Gains outside an investment bond are subject to CGT only if you sell but have an annual allowance of 9.2k (double for a couple).If you need income, then it is easy to sell 9.2k's worth of gains once a year (18.4k for a couple) and pay no tax.

So you require rigid administration and completion of a tax return and incur costs on buying/selling. Fund switches could also result in you exceeding your CGT allowance. On 200k, what happens if we have a 20% growth year? That £40,000 gain doesn't fit well with your £9200 allowance. Indeed, the gain could then push you into higher rate tax if you exceed the allowances. Not a problem with the investment bond as that issue doesn't exist.

As dividend income is effectively tax free for basic rate taxpayers, there is no need to pay any tax at all. And there is certianly no need to go in for elaborate and expensive insurance products to wrap around your investment so the advisor and the insurance company can make more money by paying you pack your capital (which is what these withdrawals represent.)

Investment bonds benefit from the tax credit the same way. However, Ed is incorrect in saying dividend income is tax free. It is not. It is tax paid. However, the amount is added to your income for tax purposes and if it takes you above the age allowance reduction (£20,900) then you start to lose your age allowance. If it takes you into higher rate, then you pay higher rate tax on the dividends.

Neither of those occur with investment bonds.

And nor need there be any tax on spending your income.But there will be if you use an investment bond. .

Withdrawal on investment bonds is not taxed. It is treated as withdrawal of capital.

People can make up their own minds about the value of these products if they are given the facts.But as is clear on this thread, they often are not given the full picture.

What is clear from this thread and all the others on this is that you dont know what you are talking about and you are a dangerous individual for the poor posters here who may not realise the risks you are putting them at if they choose to follow your advice.

Hereward

EdInvestor wrote: »

Investment bonds are the cause of the second largest number of misselling complaints to the Ombudsman after endowments.

I wonder why? :rolleyes:

A cheeky response: The complainants have read your posts and think that they've been sold a pup.

jem16

EdInvestor wrote: »

People can make up their own minds about the value of these products if they are given the facts.But as is clear on this thread, they often are not given the full picture.

The only thing that is crystal clear on this thread is that you are not providing the facts.

The thread that dunstonh links to earlier does provide the facts - you choose to ignore them. Why?

Strawberry_tart

Seems like I've stirred up a hornets nest....sorry about that. Just to answer a couple of the questions posed again, my husband does pay the higher tax rate on a portion of his salary but I currently do not pay any. We have just put money saved for the children in a maxi ISA in my husbands name as I already have one. I think we were quoted AXA as a cautious fund due to the fact that we mentioned that we may want the money in less than 5 years (small probability but you never know), we will certainly look into haggling over the commission rate. Any further advice on the benefits of commission over flat fees or vice versa?:T