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Reforms raise thorny issue of suitability

IFAs face a headache when advising on insurance bonds after the Chancellor proposed a flat rate of capital gains tax.

Hargreaves Lansdown says it is checking the suitability of all its advised investment bond sales in light of the pre-Budget report proposals.

Head of financial practitioners Danny Cox says where the investment is not completed or the client is still in the cooling-off period, they will be given the opportunity to cancel if the investment is not suitable.

Technical Connection director John Woolley says some clients, particularly short-term investors, will benefit from the new flat rate but many may be better off in an Oeic or unit trust.

Woolley says: “Advisers will have to be a lot more careful in understanding a client’s circumstances, particularly if the client is investing for income.”

He says the issue is further clouded by the fact that investors holding income-generating funds in a life insurance bond will continue to benefit from being able to build up dividend income without a further tax charge. Unit trust investors face a tax hit on their income, depending on their earnings.

Heartwood Wealth Management investment director Alan Sippetts says clients whose CGT plans relied on taper relief for long-term investments will face the costly and time-consuming process of reworking their plans. He says: “Many clients’ tax planning will go out the window.”

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