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Draw align

Last week, I considered the current momentum, both for businesses and individuals, behind accessing value and reducing costs. I linked the potential importance of tax reduction through planning to this growing phenomenon and suggested that advisers seeking to have profitable conversations with existing and potential new clients should, in deciding what communication initiatives to lead with, seriously consider alignment with these strong underlying demands.

The existence of these sometimes unstated demands could result in interest in ideas that, when carried through to action, could deliver excellent value for both the client and the adviser.

Examples of the “aligned initiatives” referred to above could include those providing for access to cash, retention of cash, reduction of and protection against risk and reduction of tax.

For each of these areas, there is a strong and directly relevant financial planning related discussion to have. I will look at some of these areas in a little more detail over the coming weeks but for now just consider the rich conversations that these areas of likely client concern can deliver.

Accessing and keeping cash, for example. Here, there could be two possible drivers. The first could be a concern over committing funds to a pension arrangement for which there may be a more pressing immediate business need or the concern that one might arise in the near to medium-term future.

Such a concern would be completely understandable, especially these days. For those businesses and individuals that have this concern, one could consider how the availability of loanback (for small occupational schemes) might help to give the necessary reassurance of or safety net for accessing some of the pension fund monies if required in the future, subject to the satisfaction of the necessary conditions regarding loan security, interest rates, term, repay- ment and, of course, the amount of the loan (the broadly well known 50 per cent of fund value limit).

Subject to all of these considerations and the potential borrower’s attitude to debt, it may be that the availability of the loan facility (which may not actually be needed) is what gives the would-be contributor the necessary reassurance to make the contribution.

Loans are only possible to the sponsoring employer in relation to the occupational scheme facilitating the loan. Loans to members would be unauthorised payments.

If funds are to be retained in the business (if your target client is a business client), then thought needs to be given to where those funds should be held.

In making this decision, it will be necessary to take account of the investor’s attitude to risk, aspirations and the time at which the money is required.

At this time of heightened sensitivity over the return of capital, questions may also need to be answered over the level of protection that the Financial Services Compensation Scheme offers for the various investments that can be made, starting (and perhaps even ending) with good old fashioned deposits.

Broadly speaking, small companies qualify for the same levels of FSCS protection on deposits and investments as individuals and all companies qualify for the protection for life policies.

“Small” in this context is a company that satisfies two of three tests, namely, on average 50 or fewer employees, turnover of £6.5m or less or a balance sheet value of £3.26m or less.

Naturally, any corporate investment needs to have great care taken over it. Not only (and most important) in respect of the underlying investment portfolio but also in regard to the tax wrapper. If an ordinary collective is chosen, then is worth knowing that the dividends are not subject to tax in the hands of a corporate investor whether taken or reinvested and only realised capital gains are taxed – after indexation allowance.

For collectives that qualify to pay interest distributions, the loan relationship rules need to be considered, as they do for any investment in investment life insurance policies – most obviously, in this context, UK and offshore bonds.

Provided the business is “small” (see the above conditions), then it would be possible for the company to use a historic-cost basis of accounting which should enable the company to secure tax deferment (and not suffer annual taxation) on any gain made until an encashment is made.

These relatively new provisions need to be carefully considered but provided the deferment can be secured, then an insurance-based investment (especially an offshore one) could look to be an attractive tax wrapper for holding deposit-based investments that will produce (otherwise) taxable interest.

All interesting stuff and all stuff that you need to be at least aware of if you are to have informed discussions on the retention, accessing and tax- effective investment of corporate cash.


Philip Calvert

IFA Life founder Philip Calvert has come a long way from his early days as an amateur rock concert and wedding photographer and is now firmly established as a leading commentator on all things internet-related.


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