View more on these topics

Don&#39t let taxman pump you dry

For investors who object to fuelling the Revenue&#39s coffers with tax from their savings, the answer could be offshore investments, writes Scottish Life Interna-tional advertising officer.


At last, motorists are lobbying the Chancellor to reduce the tax levy on the fuel they buy. But when it comes to investing their hard-earned cash, why is it that investors are happy to sit back and let the taxman help himself?


Many people seem comfortable investing their savings in products such as with-profits bonds and unit trusts. But who wins most out of these investment vehicles? The Inland Revenue.


In the same way that car owners pay tax on their vehicles – road tax and fuel tax – many investors pay income tax, capital gains tax and inheritance tax on their investment vehicles. If they also own a car, just think how much of the money is going to help refurbish certain politicians&#39 offices.


Is there an alternative? Many people ask this question but how many get the right answer?


Offshore bonds provide a tax-efficient alternative to UK products but you won&#39t hear the Government or the regulators broadcast their benefits from the rooftops. Why should they promote a product that will reduce their income?


This only adds to the mystique that offshore investment is for the mega-rich or those trying their hardest to avoid the taxman. While this may have been the case in the past, for some investors it could provide them with the additional legitimate rewards that their investments are due.


If you had the option of paying car tax now or later, what would you do? I imagine most people would prefer to pay it later at a time to suit them, if at all.


Unlike the motorist, UK investors have this choice. So why do so many investors choose to put their money into products that take the tax out now?


Current UK investment products are generally variations of products which have been around for generations, for example, the with-profits bond. Investors see direct-sales ads every week for these products. As a result, they do not think too long about what to do with their nest egg. It seems an easy choice to make or so we would be led to believe.


But as with any other major purchase, investors should do their homework or take independent financial advice to investigate the charges, features and, more important, the potential return on their investment over the required term.


Let&#39s take with-profits bonds as an example. The industry&#39s biggest with-profits bond offers an annual reversionary bonus rate of 4.75 per cent. Millions of pounds are invested in these products every year – millions of pounds whose growth is subject to tax.


Compare this with an offshore bond whose growth is not subject to tax at source. Add the fact that a tax-free income of 5 per cent of the initial investment can be withdrawn each year, along with the fact that the bondholder can decide when to pay any tax, and surely this should make anyone think twice before handing over their cash.


How many people who do not take independent financial advice actually take the time to check all this out? Like many other purchases these days, if it drops in their lap at the right time, they may just take it so they can avoid the inconvenience of shopping around or finding an IFA.


But take the case of the good old motorist. Would they just turn up and buy the first car they see without checking out the mileage, service history and gadget list? Would they buy the car just because it has been around for a long time? I think not. Why are people prepared to take this approach with their investments?


We cannot point the finger of blame in any one direction. However, for some time now, many IFAs have been asking the taxing question: “How can I minimise Hector&#39s benefit on my client&#39s investment?”


Many clients of these IFAs are now beginning to see the shimmer of the headlights offshore.

Recommended

Supermarkets won&#39t make a clean sweep

Beyond ease of access and lower charges, supermarkets offer nothing new and investors will continue to need advice.The past few months have seen the launch of a number of fund supermarkets, notably Fidelity&#39s FundsNetwork.The CoFunds supermarket is due to open in November, while Skandia&#39s multifundshop went online during August.I find it interesting that not all […]

Tennis Elbowed

The Diary was amazed at the wit of readers hoping to win Scottish Equitable Employee Benefits&#39 recent tennis competition.You were asked to tell us who won the Wimbledon women&#39s singles title last year plus provide a tie-breaker starting: “Seeb enables IFAs to win game, set and match with its corporate clients because…“…it has all the […]

&#39Permanent part of Equitable deal&#39

Protection specialist Permanent insists it will be part of the Equitable Life pack-age when the life office strikes a deal with a suitor later this year.The insurer says it exp-ects to be sold as a comp-lete package along with Equit-able Life.Permanent says it is business as usual despite the cloud looming over Equitable following its […]

LeggMason goes American

LeggMason Investors Asset Managers, formerly known as Johnson Fry, has brought in a new investment trust, called LeggMason investors American assets.The product, which will be listed on both the London and Channel Islands stock exchanges, is aimed at investors looking for both long-term growth and high income.The investment trust will focus primarily on America, with […]

The Natixis Solution: H2O MultiReturns Fund

A product designed to bring some unique attributes to the crowded absolute return global macro space With diversification and risk management top of investors’ wish lists when it comes to alternatives, step forward the H2O MultiReturns Fund. H2O Asset Management is an independent boutique backed by Natixis Global Asset Management and has a 14-year track […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com