Service 3
- Use of a Platform
i. The Transact Platform
We advise you to use the Transact plan to consolidate your financial portfolio. The Transact plan is a set of 'Tax Wrappers' including ISA, Pension and General Investment Accounts. These allow you to invest in any financial security.
Both the advisor and the client have on-line access to view the portfolio and all transactions. The client's financial portfolio can then be managed as a whole to gain the best possible tax and investment results.
Transact is an authorised Insurance Company, and investment account manager. Transact have more than £6 billion of funds using the platform.
ii. Investment Responsibility
We use the Transact plan as the framework for managing our clients' assets, but we as Investment Managers advise how and where to invest the funds.
iii. Wrap Accounts
A Wrap Account is an investment account which is 'wrapped up' in a tax plan. These tax plans are:-
o General Investment Account (GIA)
o Individual Savings Account (ISA)
o Personal Pension Plan
- General Investment Account (GIA)
i. The client invests directly in cash, bonds, shares or funds of these securities.
ii. The interest and dividend income may be held in the account, or drawn out. Income tax is payable on the income.
iii. The Total Return is the income plus the capital gain on the investments. The capital gain will be taxed at a lower flat-rate of 18% from April 2008. In addition the client has an annual capital gains tax allowance of £9,600. This makes the GIA a tax efficient plan and the average rate of tax on gains is low.
iv. A GIA allows flexible access to funds. The client may draw either an income or lump sum at any time. To reduce risk the client should only invest in equities where they expect to hold the funds for five years or more.
- Individual Savings Account (ISA)
i. An ISA is an investment account with the advantage that the income and capital gains are exempt from tax. The funds will grow faster because the returns are tax free.
ii. The client may contribute up to £7,200 each tax year. This amount may be conveniently transferred in from the GIA. There is no time limit for holding the funds. The client may draw a lump sum or regular income out of the ISA at any time.
iii. From April 2008, Personal Equity Plans (PEP's) will be merged with ISA's.
- Personal Pension Plan
i. Tax benefits of a Pension Plan
o Employees and Partners pay pension contributions net of 20%. For example, £100 net is grossed-up to £128.
o Higher rate taxpayers may claim 18% higher rate relief on the grossed-up amount.
o Employers may pay a contribution for staff directly into a personal pension plan. This does not incur National Insurance (NI) charges.
o An employee may sacrifice salary for an employer to contribute to his personal pension. The employer may also pay in the NI of 12.8% which is saved. This gives the employee total relief of 53.8% on sacrificed salary.
o The maximum pension contribution is £225,000 gross in 2007/8, and pension benefits are subject to a Lifetime Allowance of £1.6 million.
ii. Pension Benefits
o A member may take pension benefits from age 50, (age 55 from 2010).
o The member may take up to 25% of the pension fund as a tax-free lump sum. The balance must be used to provide an income in retirement.
o The pension income may either be from Pension Drawdown, where the member draws an income from his invested fund. Or, the member may purchase an annuity from an insurance company. An annuity is a regular guaranteed income for life.
o In the event of death before taking benefits, the full value of the pension fund is paid to the member's beneficiary, free of tax.
iii. Self Invested Personal Pension (SIPP)
o A SIPP is a personal pension with wider investment powers. A personal pension may invest in any marketable security, and in commercial property. It may not invest in residential property.
o Most SIPP providers will not allow an investment into a Property Partnership, but they would allow an investment into an Exempt Property Unit Trust (EPUT).
o A member may have any number of personal pension plans. The limits on contributions apply to all plans in total.
iv. Pensions and ISA's
o Pensions and ISA's are complimentary in financial planning.
o Pension contributions are exempt from tax, the growth is exempt from tax, but pension income is taxable:-
E - E - T Exempt - Exempt - Taxed
o ISA's have no tax relief on contributions, but growth is exempt and the income or lump sum taken is exempt.
T - E - E Taxed - Exempt - Exempt
- Risk Warnings
i. The value of financial investments may go down as well as up. You may not get back your original capital.
ii. Past performance is not a guarantee of future performance.
iii. You may reduce risk by diversification, and by investing for longer time periods. This will not eliminate risk entirely.