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Key issues

I have said it many times before and I will no doubt say it many times again – the key deliverable of a financial adviser, regardless of regulatory status, is advice.

Current hard times are showing us every day that, if there is to be human interaction in the delivery of financial services products, then the human must add some value (that can be charged for) along the way.

This should cause advisers to think carefully about the markets they wish to concentrate on. Most obviously, business areas where advisers are offering financial solutions (often incorporating products) and not merely financial products are likely to produce the most scope for adding value.

Whenever choices exist for a client or potential client, the adviser has a role to play by applying expertise and understanding to the facts given to him by his client and then computing a bespoke solution.

So what are the key requirements to facilitate this valuable skill of solution creation? I believe that relevant knowledge and a desire to maintain and enhance it is a good start.

Insurance to facilitate business succession and continuation is an area where a wide range of choices exists. Whenever choice exists – especially where the choices are hard – there is a role for advice. But despite the need for help with choices, there is little new knowledge that is emerging on keyperson inurance.

Recently though, I spotted a case on the deductibility or otherwise of premiums paid by a company under policies on the lives of two of its directors. I thought you might like to read about it.

In the case I refer to, the payment of insurance premiums on term policies on the lives of two company directors were not allowable deductions in calculating the company&#39s corporation tax liability where the payments were not made wholly and exclusively for the purposes of the company&#39s trade, that is, where there was a dual purpose.

The case of Beauty Consultants vs Inspector of Taxes was heard by a Special Commissioner who dismissed the company&#39s appeal. The issue was whether premiums payable on term policies on the lives of two directors of the company were an allowable expense for the purpose of calculating its corporation tax liability.

The facts (a little complicated) were as set out below:

•There were four companies to consider: Company 1 distributed cosmetics, Company 2 dealt with the agency side of the business, Company 3 was the holding company for the first two companies and Company 4 (the taxpayer company) was a new company established in 1994 after the business of the first three companies failed.

•The two individuals involved in the case, A and B, were shareholders in the first three companies but were not directors and could not be shareholders in Company 4 until certain business targets had been met.

•A and B granted a second charge on their home for the new investment made by independent investors and banks in Company 4 when it took over the failed business of the first three companies and also personally guaranteed the loans made by the investors/backers.

•A separate property, The Manor, was transferred by A and B to Company 4 (the taxpayer company) in return for preference shares.

•In 1995, the targets were achieved and A and B acquired ordinary shares in Company 4 and became directors.

•In 1996, A and B acquired further shares in Company 4.

In 1997, the Inspector of Taxes took the view that premiums paid by Company 4 under certain life policies, as detailed below, on the lives of A and B were not deductible expenses as they were expenses that had not been incurred wholly and exclusively for the purposes of the trade.

There were three categories of life policy involved in this case:

•The policy styled QV originally effected by the holding company (Company 3) on the joint lives of the two shareholders (A and B) in the holding company on a first-death basis and which was assigned to the taxpayer company (Company 4) when A and B were about to become directors and shareholders in that company.

•The policy styled QZ on the joint lives of A and B (again on a first-death basis) which was owned by A and B jointly and was linked to a charge on The Manor (which had been transferred to Company 4).

•Two Equitable on the joint lives of A and B which were effected in connection with the purchase of their home.

Next week, I will look at the position under these policies in turn.


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