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Skandia launches tax financial planning tool

Skandia has launched a new financial planning tool enabling advisers to demonstrate how to maximise tax efficient withdrawals from collective investments and investment bonds.

The move, which comes after recent tax changes in this year’s Budget, will show how withdrawals could be made by using a combination of collectives and investment bonds without paying tax for up to three or four decades.

The tool combines the use of the 5 per cent tax deferred allowance of bonds alongside the part disposal formula, and the Capital Gains Tax annual exemption for collective investments.

For example, a £500,000 investment invested entirely in a bond with a 5 per cent withdrawal taken each year, then tax is payable in year 21. If the entire amount was invested in a collective and a 5 per cent withdrawal was taken each year, assuming 6 per cent consistent growth, and full CGT exemption available tax would be payable in year 11.

However, by investing £300,000 in a collective and withdrawing £19,000 per annum, and investing £200,000 in a bond and withdrawing £6,000 from the bond but still withdrawing 5 per cent of the total invested, could extend the point at which tax becomes payable to year 33.

Skandia head of tax and financial planning Colin Jelley says: “The restriction on the amount of higher rate tax relief available on pension contributions is going to lead to demand for alternative investment solutions for higher earners. At the same time the increase in income tax for these people is going to result in careful financial planning to ensure capital extraction is combined with income to enable withdrawals to be made from these investment solutions as tax efficiently as possible.

“Calculating how best to combine different investment solutions to achieve this can be laborious and this tool is designed to make that process far more efficient. We appreciate that in today’s climate advisers are keen to use financial planning tools to demonstrate the value of the advice they provide. This new tool can help them do this and hence add significant value to the advice process.”



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