WAY Group's IHT mitigation mission from inception to future.
The WAY Group Newsletter for Financial Advisers | August 2011
"WAY? Oh yes,the IHT specialists..."
Eddie O'Gorman, Director of Sales & Marketing, WAY Group Limited
The WAY Way
Maybe it would have been nicer to hear that from an IFA or even from HMRC but delivered in my local butchers as conversation developed with a fellow customer of my vague acquaintance, recognition of the WAY name in such a fashion was a satisfying response to the declaration of my workplace. Granted, I live in Westbourne, Bournemouth, where the traffic lights can change three times whilst residents cross the road so the topic of inheritance crops up with greater regularity than in most communities but it was a clear indication of the niche we have carved since we launched our first IHT plans in 2003.
What's Been
We are now fast approaching 1,000 live trusts in operation and this portfolio has built during a period where the tax became a veritable political football. Legislative changes abounded as Pre-Owned Asset Tax (POAT), Transferable Nil Rate Bands and Chargeable Lifetime Transfers became part of the regular estate planning lexicon. One constant during that time has been our trust wordings which remain as when first introduced and are a testament to the care, attention and skill of Nick Chadwick in their drafting and Lynton Tucker as tax counsel. The flexibility afforded to settlors without provoking HMRC was fundamental to our original aim to develop mainstream solutions which were seen as tax mitigating and not tax avoidance. For that reason, once tax counsel was satisfied we sent our trusts to HMRC with statements on the interpretation on which we were relying and were gratified with the response.
Attention to our plans was immediate, not just for their flexible access and control reach, but for the distinctive use of collectives rather than life company bonds as the settlor's investment vehicle of choice. Immediately, the tax profile of the underlying arrangement changed from income tax to capital gains tax providing a more tax efficient backdrop for the majority. This 'rule of thumb' still applies today with higher rate tax payers and trusts charged at a 28% CGT rate whilst suffering a top-end 40% or 50% rate of income tax.
What's To Come
So, if our plans have proved highly valued by IFAs and their clients for the last 8 years then will they continue to do so? This is an important question as many have held back from estate planning citing the likelihood of changes to the tax regime. Indeed creditable 'think tank' reviews - The Mirrlees Review (Institute of Fiscal Studies, 2010), Death & Taxes (Institute for Public Policy Research 2010), Review of Tax Reliefs (Office of Tax Simplification 2011) - have mooted various alternatives. Increases to the nil rate band, a 'wealth tax' payable in lifetime and a 'donee tax' which switches tax scrutiny from settler to beneficiary have all been suggested.
Each have fiscal or administrative flaws however and, whatever thoughts one might have on the percentages applied, the current system is actually a straightforward tax to plan for.
With the nil rate band now frozen to the end of this parliament and the Chancellor ignoring the IHT comment in these papers during his last budget address, the most likely scenario is that at some time in the unforeseen future (when the coalition compromises have been played out and the exchequer is in ruder health) there will be a topdown review of estate duties.
What's Important Right Now
For the moment then the position is quite clear. We have a tax regime where the thresholds have been set out for the lifetime of this parliament. The frozen nil rate band makes it figuratively simple to draw up plans but the fiscal drag it creates accentuates the reason why people should commence their IHT planning at an earlier age than the current average (men 69, women 72) in order to maximise the recycling of their own nil rate band. So much better if, for example, a gentleman was to plan at 60 and have mortality tables encourage him to believe that he will have at least 'two bites of the cherry'.
A complementary part of taking earlier action is the need to ensure that the chosen planning route does not place the client in a 'straight jacket'. At 60, there are still a number of challenges that life has in wait and it is vital that the solution to deal with inheritance tax does not preclude the financial flexibility to face those encounters.
The old maxim of 'hope for the best and plan for the worst' is particularly apt when applied to estate planning.
This leads me right back to the robust trust and plan structure that has served us well up until now, one which:-
- Utilises collectives to maximise tax efficiency;
- Provides a bespoke reversionary schedule for client access (not limited by 5% life company bond rules);
- Allows deferment of reversions without tax implication if not required;
- Enables loans or appointments of trust value to nominated beneficiaries;and
- Enables loans or appointments to additional appointed class members.
Such flexibility allows life's chicanes to be circumnavigated and provides exit routes if the rules surrounding estate duties were to change in a subsequent parliament.
WAY's avowed mission from the onset of our IHT development has been to create plans which afford the maximum access, control and flexibility intended to allow clients to deal with their IHT liability without feeling financially denuded.
Oh, I should mention innovation too, after all IFAs and clients alike are always looking for fresh creative ideas to tackle old problems.
My neighbour in the butchers wanted to talk about our 'Gifts From Income Plan'. A pension from which he was already drawing down and a burgeoning buy to let portfolio was now generating an income he was just accumulating in his bank account. Old school thinking made him reluctant to give this excess away outright to four grandchildren but equally abhorrent was the notion that this would attract a 40% hit on death after already suffering income tax on the way into his bank. Enter his IFA who had just shown him our plan which offered immediate IHT exemption on gifts out of regular income and placed his money in a trust with controllable access - just what he was looking for (half a pound of best mince aside).
Every IFA probably has one client who they know ought to be engaged with IHT planning but can't be dragged to the table - generally for fear of losing any access and control to money put aside assiduously over the years.
Our ambitions and solutions are aimed at conquering that fear and providing IFAs with the arrangements to serve that needy but reluctant client as well as the more receptive.
References:
Data & Statistics - WAY Fund Managers Limited
– Ends –
Associated links:
Download the PDF of this article: "WAY? Oh yes,the IHT specialists..."
Download the PDF of an accompanying article in this series: "It's time to act on IHT..."
Download the PDF of an accompanying article in this series: "Save IHT and boost the 'Return on Planning'..."
(Please Note: The above feature articles first appeared in Investment Adviser on 25th July 2011. Reproduced with kind permission.)
How to contact us
If you wish to discuss any matters arising from this article or, indeed, want to talk to us about any of WAY's products, then you are most welcome to call either Tony Lyons, IFA Support Manager, or Mark Benson TEP, Technical Manager , on head office telephone number: 01202 890895. Or, if you prefer, you can use the website: Contact Form to get in touch. We look forward to hearing from you.
The WAY Group Newsletter for Financial Advisers | August 2011
Please Note:
This document has been prepared for Financial Intermediary Clients and Professional Associates of WAY Investment Services Ltd and is not intended for and must not be distributed to Private Investors. This document does not constitute investment advice. Services referred to in this document may not be suitable for every investor and if in doubt independent financial advice should be sought. No representation or warranty is given (express or implied) as to the accuracy, completeness or correctness of the information nor the opinions, interpretations and conclusions contained in this document. No liability is accepted whatsoever for any loss howsoever arising from any information in this document subject to the rules of the Financial Services Authority or the Financial Services and Markets Act 2000. Past performance is not necessarily a guide to future returns and changes in rates of exchange between currencies may cause the value of investments to rise or fall. Share prices, values and income can go down as well as up and investors may get back less than their initial investment. WAY Investment Services Ltd is an Appointed Representative of WAY Fund Managers Ltd which is authorised and regulated by the Financial Services Authority.