Tax planning ideas are communicated most effectively when they are targeted at the group for whom the ideas are most likely to be relevant. Obvious, really, isn't it?
Client segmentation is something which advisers should be doing on a regular basis to ensure they secure the best payback on their investment of time and funds in constructing the tax planning strategy in question.
When considering those clients for whom their tax planning messages are relevant, advisers will no doubt pay greatest attention to client segments that are reasonably wide and for which a strategy is likely to be of importance, responds to an immediate and pressing need, is capable of relatively easy explanation and implementation and is relatively low risk.
In considering the first of these criteria, it will be well worthwhile considering the flurry of activity in the press over the past few weeks on affluent over-50s. It does not take much thinking time to recognise that this group is anything but a micro-specialist group. On the contrary.
You only have to consider the facts and you will quickly recognise the importance of this segment.
Over-50s account for 44 per cent (yes, 44 per cent) of the UK population – some segment. They also account for 40 per cent of UK consumer spending and 80 per cent of national wealth. Is this enough to get you excited? It should be.
The chances are, if you are reading this article, you could well be one of this group. However, it seems that very little consumer marketing properly targets this group. Added to the fact that the over-50s are apparently much more difficult to persuade, this must mean that opportunities are being missed. And this must apply to financial and tax planning as well as the marketing of consumer goods.
What tax planning strategies are likely to appeal to this group and why? Well, anything to do with pre-retirement and at-retirement planning is likely to be relevant. Immediately, you will appreciate the need to subdivide your generic over-50s into those who have not yet retired, those almost at retirement and those in retirement.
Many over-50s will have children at university, some will already have grandchildren and those who do not may be expecting them in the not too distant future.
For those not too financially preoccupied with funding for their own retirement, setting up a tax-effective fund to pay for the higher education fund of their grandchildren or future grandchildren may appeal. Advice will be essential to ensure that the right tax wrappers are chosen, maximum use is made, where appropriate, of the child trust fund (available from April 2005 for those born on or after September 1, 2002) and the desired levels of control and flexibility are secured.
For those clients who run their own businesses, minimising tax on funds extracted from the business – taking account, where appropriate, of the new 19 per cent minimum rate of corporation tax on dividends paid to individual shareholders – will be a highly valued service. Advice in this area should be integrated with advice on relevant planning, especially for owner-managers who are over 50.
For those slightly older over-50s, there is estate planning to consider. The recent introduction of an income tax charge on continued use of pre-owned assets for which a full commercial charge is not made and which are not caught by the gift with reservation provisions has further cut back the opportunities for reducing the liability to inheritance tax through planning carried out during one's lifetime. This is especially so in respect of real property and chattels.
It would seem that slightly more scope exists in respect of intangible property, such as insurance policies. It would appear that many of the capital investment-based inheritance tax plans will not be caught by the new rules.
In particular, what are often known as discounted gift schemes would seem to survive on the basis that the benefits carved out and kept are not to be treated as settled property for the purposes of the legislation.
Retirement planning, planning for higher education and estate planning are just three key areas of planning for the over-50s where making the right choice is essential to achieving one's objectives.
As I have said many times before, when choice exists, when the choices are relatively difficult and where the consequences of making the wrong or right choices are significant, the role of advice and the opportunity for advisers to add value is considerable.