Unit trusts vs bonds

cohl123

Hi guys - want to keep as brief as possible.
One person company director - entered into the scary world of investments a few years ago after suddenly losing my father, selling his property abroad at a loss and going self employed (and as such needing a pension).

My money that isnt sat in current accounts is spread across HL (isa, sipp, bonds) with a mix of funds and also cash isa/ current account in case I buy property.

When I lost my dad I saw an IFA from St James, spoke to my exs dad who was an IFA and he told me most IFAs use HL funds, he had his life savings in the big HL funds- I chose to do it myself with lower fee funds (perhaps from advice here(.
Question is whether I've been going at the wrong way vehicle wise.. found by old at james advice which said.. all ISA and then unit trust feeder (no clue). Is this unit trust better fir tax than the bond vehicle? Does HL offer this?

Malthusian

most IFAs use HL funds,

Rubbish. HL funds are used by HL advisers, and DIY investors who don't know what funds they want so they pick HL's "default" option. HL funds are very expensive, nothing to write home about, and only available via HL's own platform (which is IFA-resistant),  platform, so it is possible that no IFA has ever recommended an HL fund.

Are you sure your ex's dad was an IFA and not a Hargreaves Lansdown restricted adviser / salesman?

What exactly do you mean by "bond vehicle"? "Bond" can mean various completely different things: most commonly a fixed term deposit, a corporate loan note or a kind of tax wrapper called an insurance bond. HL don't offer insurance bonds (AFAIK) so I suspect by process of elimination that you have corporate bonds in some kind of other account.

all ISA and then unit trust feeder (no clue)

It's not you, it's them, as the sentence is meaningless. It's like saying you should eat a bowl and then salad. An ISA is a tax wrapper, a unit trust is a type of open-ended fund, something that goes into a tax wrapper.

If you want to ensure that your investments are as tax-efficient as possible You might benefit from a chat with an actual IFA. It's too unclear from your post how your investments are arranged at the moment to give even man-down-the-pub advice.

dunstonh

When I lost my dad I saw an IFA from St James, spoke to my exs dad who was an IFA and he told me most IFAs use HL funds

1 - St James Place are not IFAs.   They are tied sales reps offering their own product range.    

2 - IFAs do not use HL funds. Indeed, HL do not make their platform available to IFAs.   And IFAs wouldnt use HL's funds even if they could as they are expensive.  Indeed, IFAs like seeing clients who have HL own funds as its easy to justify moving to something cheaper.    Only HL can use HL funds or DIY investors using the HL platform (and if you are using HL funds then you would benefit from seeing an IFA).

The rep is speaking out of his backside.

 Is this unit trust better fir tax than the bond vehicle?

(note: assuming onshore bond/offshore bond as the context appears to be tax wrapper rather than investment instrument)

Onshore/Offshore bonds have a place in financial planning but are not as mainstream as they used to be.  Changes in capital gains tax and dividend taxation changed things and moved unwrapped UT/OEIC funds ahead of bonds for most people.

However, a certain tied sales distribution still seem to sell bonds with limited justification for doing so as they know that IFAs can often find it difficult to unwind them (due to high taxation/charges if they try) meaning the money has to remain within the bond of that company for much longer.

Most people are better off with pension,  ISA and unwrapped UT/OEICs with bonds only being suitable for a very tiny number of people nowadays.

cohl123

Thanks- I'm not using HL own funds, I'm using HL to invest in Baille Gifford funds etc 

But discovering my IFA advice apart putting non ISA funds into a unit trust feeder I panicked around the fact that I've put it all (over the last few years) in the HL "fund and share account". I think I've used the wrong term in Bonds 

Basically the IFA said go unit trust feeder and I've invested in funds under a fund and share account HL wrapper.

csgohan4

HL is just a platform, your not tied to use HL if you don't want to use their own funds. I also looked  at HL and found them a bit too pricey, especially if you know which funds to use. BG are also on my shortlist and seem pretty good for value depending on the sector you want. 

dunstonh

But discovering my IFA advice apart putting non ISA funds into a unit trust feeder I panicked around the fact that I've put it all (over the last few years) in the HL "fund and share account". I think I've used the wrong term in Bonds 

Is this IFA someone different to the SJP rep? (noting earlier you incorrectly called the SJP rep an IFA).  "Non ISA funds into a unit trust feeder" seems like marketing speak of a particular provider.   When you invest you can hold your investments in a tax wrapper or not in a tax wrapper.    The most common tax wrappers are pensions, ISAs and investment bonds (offshore and onshore versions).   The latter, is less popular nowadays as mentioned higher up.

When you do not use a tax wrapper, you hold them unwrapped and most platforms refer to their unwrapped account as a "general investment account".     Every tax year you can do a transaction called "bed & ISA" to move money from the GIA to the ISA.    You can also do that with many investment bonds as well but it does appear to be wrong terminology as you suggest.

bowlhead99

cohl123 said:

Thanks- I'm not using HL own funds, I'm using HL to invest in Baille Gifford funds etc 

But discovering my IFA advice apart putting non ISA funds into a unit trust feeder I panicked around the fact that I've put it all (over the last few years) in the HL "fund and share account". I think I've used the wrong term in Bonds 

Basically the IFA said go unit trust feeder and I've invested in funds under a fund and share account HL wrapper.

A unit trust 'Feeder' is where you want to invest in a particular fund, but instead of investing directly you invest in a separate dedicated unit trust whose objective is to invest all the money it receives from its investors into the main fund in which you really want to participate. The feeder fund only has one investment (the 'master' fund, which does all the real investing) and when it receives distributions back from the master fund it will pass them on to its investors after paying its own running costs which are usually quite light. 

The feeder fund as a UK unit trust may be exposed to corporation tax on certain types of net income, but when it makes its distributions out of its post-tax profits they will be classified as UK dividend income. This may be efficient because depending on your personal circumstances, if you're not able to shelter your income inside an ISA you may have a preference for nice clean dividend income (taxed at a low rate, or covered by your personal dividend allowance) rather than interest income or property income (taxed at your highest marginal rate).

As an example, the L&G UK Property Fund is a PAIF (a type of open ended fund that invests directly into commercial property or real estate investment trusts). When it distributes money to investors from time to time, a PAIF can stream those cashflows into different types of distribution depending on how it made its profits. For example a PAIF can make property income distributions (distributions of income from its property rental or development business), dividends (general corporate profits and investment gains) or interest (on loan finance provided to its investees). This is quite efficient for certain types of investors, but not all, because it can depend on tax bands and allowances etc. If you are considering investing in the PAIF (because you like the idea of getting exposure to all that lovely profit from the investment portfolio) but can't (or don't want) to have direct exposure to the income - either due to some tax circumstances, or because the investment platform you're using is not configured to be able to properly stream the different types of income as distributions back to its investors - you may need to access it via the L&G UK Property Feeder Fund (unit trust).  You invest in the Feeder, it invests in the main fund and pays you a dividend out of the profits it makes from doing that.

If you had an ISA and a decent investment platform you wouldn't use the Feeder in that situation because you can invest directly into the PAIF without any tax to pay on interest, dividends or gains and to go via a Feeder could expose you to a layer of unnecessary tax on some of the income (within the Feeder itself). But if you didn't have an ISA, you might prefer the Feeder, depending on personal circumstances.

IIRC from bits and pieces I've read, if you are buying funds via St James's place they may use dedicated unit trust feeder vehicles for a number of their recommended investments where you don't have ISA capacity, and then transfer you out of the Feeders and hold the underlying funds directly once ISA allowances become available over time. In the mainstream (i.e. away from how SJP choose to structure their investment bond and UT products within their business) you don't really see much call for 'feeders' these days. There is no real need to have a 'Feeder' for a mainstream Baillie Gifford fund which will simply pay you dividends when it receives dividends from the underlying company equities it holds in its portfolio.