Advice that really does make a difference
Truestone provides advice in many areas of financial planning. Below are just a few examples of how we have helped clients organise their financial plans and at the same time deliver very real financial benefits.
Offshore Bond tax planning
– using tax free allowances to make the most of investment returns
Ten years ago a long standing client invested £100,000 using an offshore bond. Within this bond an investment was selected that had a fixed maturity date around the client’s 60th birthday, to tie-in with his anticipated retirement. He is now planning to work for a further two to three years but in the meantime the investment has matured realising £200,000. As planned, a maturity within this type of bond did not give rise to an immediate tax issue. We recommended he use this delay to maximise his return with no risk. He had the choice of maintaining the bond or surrendering it. If he maintained it, the choice of new investments was limited and none of the choices automatically appealed. We recommended a cash based option even though it only seemed to offer an annual 4% gross return.
We recognised that if the bond is surrendered a tax charge will apply on the growth within the bond for the whole time it has been held. Importantly the tax will be payable at the client’s tax rate for the year of surrender. He is presently a higher rate taxpayer so the tax payable would be approximately £40,000, leaving £160,000 after tax.
We highlighted that he has substantial pension funds and other financial assets. When he stops work, for the first full year we highlighted techniques so that he can manage his taxable income (without reducing his net income) and pay only basic rate tax. The client took our advice, maintained the bond and invested in the low-risk cash-based fund.
Our rationale was that in 3 years time, with interest the bond value will increase, probably to around £225,000. With planning he will be no more than a basic rate taxpayer. As such the maximum income tax bill on the now larger bond value is £25,000. Essentially by planning ahead the £160,000 today will have grown to nearer £200,000 – a 25% return on a cash investment in 3 years (over 7.5% per annum).
When and how to draw from investments can often be more important than the original investment decision itself.
SIPP transfer
– consolidated pension planning
One client approached us having built up 6 pension plans with a combined value of around £250,000. Over twenty years he had not applied any strategic planning or co-ordinated investment approach. These plans were with well known pension providers including Norwich Union and Clerical Medical, but also NPI and Equitable Life. He had previously discussed these plans and his future retirement planning with other advisers including his private bank who had told him he need take no action but still sent him an invoice for the privilege.
We demonstrated a clear understanding of the pensions market and an established process to:
- Understand his objectives;
- Agree the solution was to consolidate all his plans to a single pension plan with a structured, balanced portfolio to match his risk appetite and investment objectives;
- Put this into action and handle all paperwork on his behalf; and
- Agree how we would assist going forward with regular reviews planned and followed up so he knows how his funds are invested and equally importantly why they are invested in that way.
Pensions and property
– releasing capital to help grow a business
The accountant for a married couple with whom we often work approached us seeking advice for his clients. They had built up a successful business and, through that business, had bought commercial premises (with a commercial loan) and contributed to their pensions. The business continued to grow but (as is not uncommon in a growing business) cash flow was proving a challenge. The accountant knew there must be some way of releasing pension funds to help but could not see how this could happen as the clients were too young to retire.
Our solution was for the pension fund (with a commercial loan of its own) to purchase the commercial premises from the company (enabling it to clear the debt and re-establish working capital). Their pension fund agreed rental terms with the company which more than covered the cost of the borrowing (with the added benefit that any growth in the value of the commercial premises is now free from capital gains tax).
We co-ordinated the arrangements with the company’s accountant and lawyer plus we obtained lending terms from alternative bankers which were better than the clients could source themselves.
We are pleased to report that the company continues to go from strength to strength.
Review process
– essential to realising your financial plans
It is fundamental to the success of our clients’ future financial plans that we both agree what services we will continue to provide to them, and when we will provide these. We do of course also agree a fee structure to support this.
We have a well established review process which we follow:
- Obtain an updated valuation of all plans and investments directly from the product providers.
- Compare these to earlier valuations and summarise on a single sheet the values and sales/purchases made.
- Compare the assets held against the agreed objectives – is the appropriate level of equities, property, cash or other assets still being held?
- Review the funds selections – are these still suitable choices?
- Make recommendations to revise any assets/funds to reflect performance and changes in the markets whilst also taking into account the potential tax position of such decisions.
- Our report is prepared with each individual client in mind. For example some clients want basic information and are happy to know we know what we are doing, whilst others need the extra peace of mind from having additional supporting data. We are happy to accommodate both.
- Discuss the above points plus any changes to the client’s circumstances, objectives or attitude to investment risk
We believe over a series of reviews our clients gain a deeper understanding of their plans and investments which in the long run actually makes our lives easier too!
Call Truestone on 0845 362 8425 to find out more about our truly tailored financial planning service or email enquiries@truestone.co.uk.
