Client trends February 2020:
Big tax changes and pension mis-selling top clients’ concerns

Our affluent users have seen that the government is set to both give and take away on the tax front. Media coverage of the growing pension transfer scandal has also driven a significant number of enquiries in recent weeks.

Is the end nigh for Entrepreneurs’ Relief?

The 50% CGT discount businesspeople are able to claim through Entrepreneurs’ Relief has long been the target of criticism, but it now finally looks as if this generous tax break may be coming to an end.

Prime Minister Boris Johnson last month dropped strong hints that Entrepreneurs’ Relief could be scrapped at the March Budget announcement, leaving business founders facing CGT liabilities of 20% rather than the discounted 10% rate.

The cap for Entrepreneurs’ Relief was raised from its initial £1m to £10m over a decade and the tax break was said to have been worth some £2.4 billion to company founders in 2018 alone. These figures have now become highly politicised, meaning that many business people may have built their eventual exit and wealth management plans on shaky foundations.

There certainly seem to be growing numbers of entrepreneurs exploring their options ahead of the possible death of Entrepreneurs’ Relief, and it has been great to point so many people in the right direction – i.e. towards a professional adviser experienced in working with business-owners

There certainly seem to be growing numbers of entrepreneurs exploring their options ahead of the possible death of Entrepreneurs’ Relief, and it has been great to point so many people in the right direction – i.e. towards a professional adviser experienced in working with business-owners.

There are lots of tax minimisation strategies that entrepreneurs can pursue when they exit their businesses, such as a Members’ Voluntary Liquidation. However, complex tax planning should only ever be attempted with an experienced adviser on board who has a deep understanding of your situation.

Woodford investors continue to lick their wounds

There has been no respite in the bad news affecting the 300,000 investors in the disaster-struck Woodford Equity Income Fund. First they were hit with a final round of losses from £150m of write-downs related to the illiquid holdings that helped drive the former “star buy” vehicle’s downfall. Then came news that they face losses of up to 60% when money starts to be returned at the end of February.

Administrators have indicated that each unit in the fund will be worth between 58.9p and 46.4p, depending on when and where they were purchased. As we know from the many enquiries we’ve fielded from worried investors, many people were more exposed to this once celebrated manager than, in retrospect, was wise. 

As we know from the many enquiries we’ve fielded from worried investors, many people were more exposed to this once celebrated manager than, in retrospect, was wise

While we hate to see investors getting burned from putting “too many eggs in one basket”, we do welcome the renewed focus on diversification and manager selection that the Woodford affair has prompted.

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Top Tip

It seems that defined benefit pension transfers are becoming a real mis-selling scandal, with a very large number of Independent Financial Advisers now under investigation for potentially giving unsuitable advice. This is a highly complex area of wealth management and you should only take big decisions after consultation with a reputable specialist. Finding one is easy through our 3-minute matching tool.

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

Scale of pension suitability scandal highlights need for reputable advisors

We have been warning HNWIs to take transferring a defined benefit pension very seriously indeed. We hope that savers have heeded our call to take proper advice as evidence is mounting that many are making very costly mistakes.

We’ve seen an influx of enquiries related to news that the Financial Conduct Authority’s has 1,841 Independent Financial Advisers under investigation for giving unsuitable advice on transferring defined benefit pensions. Incredibly, that is reportedly almost three-quarters of the total number of IFAs advising on defined benefit transfers in the three years after pension freedoms were introduced in 2015.

By some estimates, £80bn has flowed out of defined benefits schemes since 2015, and more and more stories are coming to light of HNWIs having been pressured into inappropriate investments (particularly offshore ones)

Of course, there are some great IFAs out there, but it is crucial that investors only work with those skilled enough to carry out the necessary pension transfer analyses in the context of their wider financial situation – and who, critically, do not have a sales “axe to grind”.

By some estimates, £80bn has flowed out of defined benefits schemes since 2015, and more and more stories are coming to light of HNWIs having been pressured into inappropriate investments (particularly offshore ones).

High earners set for pension tax windfall

Top-earners using our service have increasingly spoken of the fact that quirks of the tax system often mean earning over £100,000 a year ceases to make financial sense due to a punitive 60% tax rate kicking in (because once income reaches £100,000 then income above that figure results in the loss of the personal allowance on a 2-for-1 basis). Happily, a change might be in view – one which likely will call for a speedy adjustment to your wealth management strategy.

It was recently reported that the Treasury plans to raise the threshold at which the annual allowance taper kicks in from £110,000 to £150,000. This is a move intended to resolve the issue of senior doctors reducing their hours or even retiring altogether, but will of course benefit all top-earners equally if it comes to pass.

A change to the regime will be most welcome, but HNWIs should remember that there is a lot more that they can be doing to mitigate their tax exposure, rather than simply relying on the government to make favourable moves. Read Higher-earners: Beat the top-rate tax trap to get expert wealth managers’ tips on how to keep your tax bill to a minimum.

Do these concerns resonate?

We’ve talked about a huge range of issues with HNWIs seeking wealth management advice over recent weeks. It is clear that as new decade gets underway people are feeling inspired to get more proactive about their financial wellbeing and put their money to work. Unfortunately, we’ve also heard a great deal of concern around more negative issues like the Woodford fund and poor pension advice.

This last issue is certainly the one causing us most concern. Pension pots are among most people’s biggest stores of wealth, and a key part of our mission is stopping people making irrevocable errors for want of proper advice. A consultation with a selection of best-matched wealth managers costs nothing through our service and could save you thousands. 

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