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COVID is a very bad thing, but one good thing that has come out of this is that it gave us a gift. A gift of time. And as I always say, time is the one thing that we Paraplanners need the most!

For so long I have been saying “I wish the world would pause for a moment, so I can have time to review the business properly”.  Well it did. And I did.

One of the things I’ve never had time for, and always wanted to have time for, is reviewing our suitability reports. I update them regularly; well the updates dictated by compliance or budget changes, but the fundamentals of it have always remained the same.

We all know that as paraplanners, the reports are our bread and butter; they take up the majority of our day and we’re very proud of the output.

Now, I think our reports are pretty good. We drop the jargon. We split it into three different formats, to ensure we cater to clients with different attention spans. They’re compliant. They are absolutely littered with infographics, colours, tables and charts, to make the information more digestible. They’re great, but can they be better? Can’t everything?

In addition, despite being my life’s work and having my heart and soul poured into them, deep down, I’ve always known there was a very large possibility that those reports were flipped through and popped into a drawer to read ‘later’ (at best). That no matter how many pretty colours or nice graphs we used, the majority of clients would absorb the information given to them by their adviser, ask their questions face to face, and see the report as a formality to back that up.

So, I had a ponder as to whether there was anything that could be done about that:

The vicious circle of reports is the more you try to explain a financial term, the more words you use, the lengthier the report becomes, the less likely they are to be read.

But what if we could take some of those terms, get rid of all the words, and turn them into videos? Or motion graphics? What if we could make the reports interactive, and visibly ‘pop’ so the client wants to at least have a play around with it, if not absorb every single word?

What if we could use animations to show the impact of the advice and the costs and charges, so they were as clear as clear could be? In fact, what if they got all of that information in an app, so flick through in their own time, maybe while on the tube or while in the hairdressers’ chair?

So that’s what we did. We trialled a load of programs and settled on one that can provide all the above and now we can offer “reports” which are sent to the client as a link, and is more of a presentation. Data is hyperlinked to other sites, for example the provider site, so we no longer need to add information on the platform. There are videos explaining risk and death benefits for example.

Some information is hidden until it’s hovered over and it is easily navigated around to go back and forth across the important bits.

And the best thing is?

It’s half the size.

It’s more usable and enjoyable for the client.

It feels more modern and in keeping with the technological age.

The feedback on it has been excellent and I’d like to think, that while there will always be a place in my heart for the current, word reports, that these report types will become the new norm as we drag suitability into the 21st century.

I have no doubt they will change in the future. And I hope they do. But this is a really good start.

Jo Campbell – Director

Within the 11th March budget, clarification on top-slicing investment bonds was provided. Naturally, this budget announcement was completely overshadowed by the other more pressing announcements and measures introduced to support the economy.

The top-slicing clarification can, however, have an impact on the potential tax position for a significant number of scenarios, so it is worth having a look at what the planning considerations are following the changes.

Personal Allowance and income over £100,000

When income assessable to income tax exceeds £100,000, the Personal Allowance is removed at a rate of £1 for every £2 of income above this threshold. At and above £125,000 of income, the Personal Allowance is therefore lost entirely.

For someone with £40,000 of taxable income who surrenders an onshore bond with a chargeable gain of £100,000, the Personal Allowance is therefore lost.

In this scenario, before we consider the tax applicable to the bond, the client’s current taxable income of £40,000 will be affected by the loss of Personal Allowance.

They will now pay basic rate tax on the first £37,500 of this income and pay higher rate tax on the remaining £2,500 (as opposed to paying no tax on £12,500 and paying basic rate tax on £27,500 of income).

This has not changed following the budget.

Previous use of Personal Allowance in top-slicing

What has changed is whether the Personal Allowance is used in the top-slicing calculation.

Previously, HMRC was of the view that if the Personal Allowance is lost (as a result of the high bond gain) it cannot be accounted for when working out any top-slicing relief.

If we take the onshore bond gain of £100,000 and assume this occurred over a period of 10 years, we would have a top sliced gain of £10,000.

With a top sliced gain of £10,000 you would have taken the following approach:

  • Personal Allowance is reduced to £0 due to the overall bond gain of £100,000.
  • The higher rate tax bracket, therefore, starts at £37,501 and income of £40,000 is already above this.
  • £9,500 (£500 uses the Personal Savings Allowance) falls within the higher rate bracket.

The tax charge under this calculation would be £18,000. This is based on a slice of £9,500 being taxed at 40% (£3,800) with an onshore credit of 20% applied against the full slice of £10,000 (£2,000). The difference between the two is the relieved liability relief; £1,800. Multiplied by 10 years this results in a total relieved liability of £18,000.

On the whole bond:

  • £99,500 is taxed at 40% = £39,800
  • £500 is taxed at 0% as this uses the Personal Savings Allowance

The bond has already paid tax equivalent to the basic rate, which against a gain of £100,000 would be £20,000. The difference between £39,800 and £20,000 is the total unpaid tax applicable to the bond, £19,800.

This unpaid tax, minus the total relieved liability of £18,000, equals £1,800. This is the total top-slicing relief available in this calculation.

The tax charge of £19,800 minus the relief £1,800 reduces the tax charge to £18,000.

Changes to Personal Allowance use in top-slicing

HMRC was successfully defeated in the Silver v HMRC case which was specifically focused on whether the Personal Allowance was available in the top-slicing calculation.

The outcome of this case was clarified in the March 2020 budget and now represents the approach to take. This involves the Personal Allowance being available in the top slice if the full taxable income figure plus top sliced gain, rather than the outright gain, is within £100,000 (in reality this would be the case in most instances).

So, looking back at our example, the top slice of £10,000 plus taxable income of £40,000 totals £50,000. It’s well within the £100,000 limit so we can use the top slice for the purpose of this calculation. This means we can base the tax at this stage on the higher rate bracket not beginning until £50,001 of income is reached.

  • £500 of the gain again falls within the Personal Savings Allowance.
  • £9,500 now falls within the basic rate band.

The tax applicable to the slice here would be £0 (£500 x 0%) + £1,900 (£9,500 x 20%) for a total of £1,900. As an onshore bond, basic rate has been assumed to have been paid which means a tax credit of £2,000 (the full £10,000 at 20%) applies. This results in an additional liability on the slice of £0. This is the first stage where there is a difference from the prior rules.

Looking at the overall gain, the first £500 again can be used against the Personal Savings Allowance leaving £99,500 assessed to higher rate tax (We are dealing with the overall gain here so there is no Personal Allowance available at this stage).

The tax in this part of the calculation is £39,800 (£99,500 at 40%). After allowing for 20% of the whole gain as a basic rate tax credit, this is reduced to £19,800.

There was no additional liability on the slice to multiply up by 10 segments, and £19,800 represents the top-slicing relief amount (compared to £19,800 minus £18,000 = £1,800 in the previous example).

You, therefore, take the full £19,800 figure (£19,800 minus £0) from the overall tax charge of £19,800 (£99,500 at 40% – basic rate tax already paid) to find the amount of tax due. Under this approach, there is no tax charge.

So the difference before 11th March 2020 and after is that a bond gain potentially charged at £18,000 would now have no tax liability.

A word of warning, however, is that this type of bond surrender will still cause tax implications, with a tax increase on the client’s other taxable income (as the Personal Allowance is still lost following the large gain here). So in reality, you’d need to consider whether it is worth surrendering this bond at this time in light of a higher charge to income tax on their earnings.

Ultimately, however, if you had assessed a client’s chargeable gain position in the last year or two and been put off by the tax charge, it is definitely worth reassessing now as the tax charge could be significantly lower or reduced to zero following the changes.

If the bond were offshore

The process and steps would be virtually identical. As part of the calculation on the top slice, you include a basic rate tax credit (even though no credit exists in reality).

The initial tax charge (before top-slicing) would be £39,800 (£99,500 at 40% with no basic rate tax credit given here) and from this, you take off the top-slicing relief figure of £19,800 (which is generated by the same approach as the onshore bond, using a basic rate tax credit) for a total charge of £20,000. This represents 20% tax on the full gain of £100,000.

Grant Callaghan – Head of Paraplanning
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We heard from our Client Relations Manager, Dwight to find out how lockdown has affected the working process at Para-Sols and the opportunity it presented to the business.

‘’COVID-19 has obviously posed challenges to businesses across all sectors and financial services is no different. At Para-Sols and The Verve Group as a whole, we’re fortunate that our typical desk space has the hardware to enable us a simple transition to home working. We already use laptops and internal chat groups as appropriate, so it wasn’t really a struggle to move a large team to work from home. The key though, hasn’t been just to switch to remote working, but also to maintain that team ethos and spirit that our office fosters. We’ve done this through virtual team meetings, quizzes and generally keeping up regular communication with each other. The very nature of outsourced paraplanning means we’re not located with our clients and so our working location is almost irrelevant as the whole team have access to our case submission portal and shared drives – this means for us we’re very much ‘open for business’.

Many of our clients and prospective clients have mentioned how this unique time has prompted them to review their working process, staffing and even premises. I think many firms will come out of this situation in a different shape, probably more agile, tech-heavy and adaptable to huge changes going forward. Industry-wide, I think the rise of digital signatures has been hugely accelerated by COVID-19, as has the use of video meetings for advisers and clients. Although that’s a very positive way to manage the current situation, I think it’s important to retain the human aspect of financial advice and that will be one of the challenges going forward, as will tailoring the use of technology to each specific client to ensure they receive a positive experience.

The businesses within The Verve Group have used lockdown to further develop the range of services on offer and to fast track the future of finance. It’s where we thought we’d be in 2030, but we’re going to be there 10 years early! #Project 2030 is the brainchild of Para-Sols founder Cathi Harrison. Its aim is to look at how we can adapt to meet the future needs of our clients. Several new services are being launched in early June, including:

At Para-Sols, we’ve always been pioneers in tech and when you combine that with the gift of time that has been thrust upon us, we are once again leading the revolution in paraplanning and technology. So, what happens when you combine those two elements, plus you add our innovation into the mix? You get our brand new interactive, digitally delivered Suitability Reports – which are visually interesting and super easy to use. Click here to check out the new reports.

Our new Virtual Paraplanning service offers our clients the option to have one of our paraplanners attend their client meeting virtually, ensuring we can answer technical queries and complete the meeting notes. There’ll be more coming on this soon but in the meantime, you can watch this video for a little more insight.

Our new services are being launched early June and more details will be provided at our virtual launch party, click below to register to attend.’’

As you’ll (hopefully) be aware, the world is going through a very difficult time at present due to Covid-19 (Coronavirus). This has not only had a major impact on everyday living, but it has also had a massive effect on the financial markets and you, as an adviser, when servicing your clients.

Why should I care if stock markets fall?

Many people’s initial reaction to “the markets” is that they are not directly affected, because they do not invest money.

Yet there are millions of people with a pension – either private or through work – who will see their savings (in what is known as a defined contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

The graph above illustrates the impact this is having on the main financial indices.

So big rises or falls can affect your client’s holdings, but the advice is to remember that pension and investment savings are usually a long-term bet.

Also important to remember, is the nature of investment markets. The cycles that are absolutely guaranteed to occur, over and over. Covid-19 has taken the world by surprise but, in reality, after the longest worldwide Bull market in history, some sort of downturn was expected in the not too distant future (albeit not as dramatic as has happened!).

Bull and Bear Markets

This chart shows the historical performance of the S&P 500 Index throughout the U.S. Bull and Bear Markets from 1926 through to June 2018. Although past performance is no guarantee of future results, it does show market trends and cycles.

The average Bull Market period lasted 9.1 years with an average cumulative total return of 476%.

The average Bear Market period lasted 1.4 years with an average cumulative loss of -41%.

It’s not to say things are easy. And it’s not to say the recovery will be quick. But history tells us the recovery will happen.

What should you do?

New rules introduced in January 2018 requires individuals whose portfolios are managed on a Discretionary Fund Manager (DFM) basis to be notified of a fall in value occurring that is at or above 10%.

You, as advisers, need to be aware of the effects this could have on their clients’ portfolios. This is not something that is due to the particular performance of one fund or sector, it is an issue that is market-wide.

It is therefore important to be in contact with your clients and make them aware of the situation. Good communication is important as you can help to reassure the clients of the uncertainty.

So, while everybody is out stocking up on toilet rolls and setting up remote desks we are trying to help manage expectations. We have produced a ‘10% Drop Letter’ which allows you to provide further information to your clients around the current situation and it might help to reassure them.

Click here to download the template – please feel free to use it with your clients.

In addition, there has been a special recording of That Mint Podcast which may benefit many of your clients. Click here to listen.

Finally and the most important thing… stay safe!

Peter Rhoden – Lead Paraplanner
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International Women’s Day this year was a good chance to discuss women in finance, on both sides of the coin.

Our Director, Jo Campbell, did just this in an article for Money Marketing, where she considers how treating people equally does not always mean treating them the same.

Click here to read the full article.

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MiFID II has been in force for over two years and still, we find there is a lot of debate as to how best to approach Periodic Suitability Reviews. There are enough articles and blogs covering this topic in general, and we aren’t looking to rehash old territory. However, we still see discussions on the best approach to cover certain aspects, one of the main ones being costs disclosure. Read more on this from our Lead Paraplanner, Kate Hall in this article from Nucleus. 

A study produced last Summer by NextWealth and the Personal Finance Society has illustrated that we are the leading supplier of outsourced paraplanning, used by more than double the number of firms than our nearest competitor.

As a company, we’re absolutely delighted with this outcome as it provides recognition and testament to the 11 years of paraplanning support we’ve provided within the industry. A mixture of providing excellent service to existing clients and business growth through referrals has ensured our leading position within the industry.

Summary of the report contents

NextWealth and the Personal Finance Society (PFS) have published a comprehensive benchmarking study for financial advice businesses covering the profile of financial planners and their firms, the future of financial advice businesses, investment propositions, technology infrastructure and outsourced support.

The results are based on an online survey of 482 PFS members conducted between 11 and 24 July 2019.

Insight included in the report

  • The average age of financial planners is 49 and 20% are female.
  • 39% of financial advice businesses have recruited in the past year.
  • 82% of financial planners use ESG solutions for 7% of client assets.
  • Financial planners use between 2 and 3 discretionary fund managers.
  • Between 3 and 4 weeks pass between the first point of contact and the first piece of advice is delivered to clients.
  • The average cost to onboard a client is £1,543.


Talk to us about your paraplanning requirements.
Dwight Scaife – Client Relations Manager

Having joined Para-Sols team in Summer 2019 from a role in Insurance and having previously run his own wedding and events company before that, our Client Relations Manager, Dwight Scaife is well placed to empathise with our clients who run their own IFA firms.

We spoke to Dwight to find out about the parallels between his previous experiences and his current role at Para-Sols…

“I co-ran a wedding and event hire business for 5 years and then worked in insurance before joining Para-Sols. Both roles were very focused on client-facing and guiding clients through a journey.

At first, I thought that my previous experience of running an owner-managed business would be irrelevant, as it was in a different sector, liaising with hotels and engaged couples organising weddings and functions – weddings are a world away from Financial Services, or so I thought.

There are numerous similarities between the sectors in terms of business operations and it quickly became clear that the role of running my own business and liaising with financial advisers for Para-Sols are strikingly similar. When I’m speaking with the smaller adviser-owned businesses that contact Para-Sols, I find it extremely helpful to have had the experience of running my own business and of being self-employed. I can identify with the problems and struggles that they encounter.

What they are looking to achieve, by contacting Para-Sols, in terms of streamlining their process, saving money and generating time, or just having some additional support, are all positives that any business strives for. These same key themes appear in many of the conversations I have with them and are often the reason for the initial contact.

We’re approached by a new prospective client for various reasons, one of which being that they have experienced, or are anticipating, an increase in case volumes, so have too much work for their current resource levels and are struggling to service the client numbers. Their current process may have become slow and cumbersome, leaving them with a potential ‘bottleneck’ within the business, leading to inefficiencies. There may have been a change in staffing in terms of administrative support staff, or a current paraplanner change. It may simply be that the business has experienced a growth phase and so needs to bring in additional resources to cope with the increased client numbers, and to assist in maintaining that growth.

For larger firms, the reason for contact could be a merger with another firm to generate a spike in workflow, or a maternity cover scenario.”


Streamlining the process

At Para-Sols, we actively assist our clients by offering an Admin Service for sending off and chasing LOA’s and carrying out research. This part of our overall service is something that our smaller clients really benefit from, as we work with them to establish a process to ensure they get the most from being a Para-Sols client. We usually find that they don’t have the time or resources to complete this work themselves. Whether it be contacting providers on their behalf, or retrieving documents from their back-office system, we have processes and systems in place that can streamline the advice journey and really make life easier for them.

The equivalent of this in my previous capacity would be that we formed working relationships with hotels and event venues. This ensured the venues wouldn’t need to source their own suppliers for every function, as once the relationship with us had been established, then they became to rely on us and knew that we would provide the staff and services to cover their functions as needed. The process would be further streamlined if the couple were looking to book their own suppliers as the hotel would recommend us and as our Insurances and Documentation were already in place with them, then the whole process would be incredibly smooth and efficient. We know the venue and they know us, simple really!


Save Time to generate more clients

Previously in the wedding and event hire business, I was solely in charge of liaising with new enquiries, going out to client appointments and then co-ordinating the actual event hire logistics and maintaining those relationships with external suppliers and venues. Wearing this many ‘hats’ sometimes meant that new enquiries would be responded to slightly slower than hoped, due to the pressures of ensuring the existing client’s needs and function requirements were in place.

Having a service in place like Para-Sols would have been hugely beneficial (not that we had a lot of suitability reports to write!) in terms of co-ordinating the specifics of the event and completing the core function of the business once the client was on-board. Time was something I never had enough of and this often led to business development and potential company growth taking a back seat, as the actual core function and client care was carried out. The process worked well though, in terms of the clients already liaising with the same person throughout the journey, but was restrictive at times from a company perspective.


Reduce Costs

Sometimes an enquiry can be price-driven, there’s no getting away from it! Prospective clients are maybe already outsourcing but are looking to move purely to save money. We get it, we live in the real world! Whilst we strive to maintain a competitive fee structure, at Para-Sols we don’t use fees as the primary reason for clients to join us, as you ‘get what you pay for!’ That being said, our fixed fee case costs and 20% off CashCalc subscriptions deal, do mean clients are happy to join us. There’s also the added bonus for smaller firms that they can often cancel some subscriptions including Select A Pension, FE Analytics and Techlink, as we have our own accounts for them.

Cost driven enquiries also occur with our larger client enquiries as they cross the bridge of ‘hire or outsource’, but we’ll cover that in another blog.


General Support

In my previous role, I became the contact for clients to liaise with if they had any queries in terms of their function arrangements. Whether it was checking the times, dates, places, costs, people or services involved, it was important to be able to reassure them and provide the necessary details when required.

At Para-Sols, we take client care very seriously and pride ourselves on the long-term relationships we’ve forged with our clients over the past 11 years. It’s a reassuring voice at the end of the phone when a client contacts us that we find is a really valuable asset and one of the key areas of the positive feedback we receive. All of our 19 paraplanners are officed based and can be reached by phone during office hours every week. It’s that accessibility and the structure of our ‘teams within teams’ that our clients love. All our clients are assigned a ‘hub’, which is a small core team within that our larger team. This ensures consistency and that they liaise with the same staff repeatedly regarding cases and are able to build relationships with our team. We get to know their preferences and working style and they know who they will be working with, so it’s a win-win!

All of the above points just help to highlight that we’re all just people (obvious I know!), but when there’s a business need to be identified and that need can be met through collaboration with another business to achieve mutually beneficial gains, then it’s the ideal scenario. If the need happens to be outsourced paraplanning then Para-Sols are the perfect solution, feel free to contact us and it’ll be me that you’ll chat with. If you’re looking for a photo booth or some car insurance, however, unfortunately, I’m no longer the right person to speak to!


Wondering where all the good paraplanners are? You’re not the only one.


Most advisers I speak to are struggling with recruitment and retention, and not just of paraplanners. The dearth of people coming into financial services means many firms are finding it difficult to grow, not through lack of demand but because they are unable to find good-quality advisers, administrators and operational support to build the supply.

So, what to do? If you are determined to find someone with experience, rather than train a newbie from scratch, here are some things to consider:

Review your job advert.

Ours are written quite colloquially, and are ever so slightly tongue in cheek, and we get candidates raving about them all the time. They always say they applied for our role because the job advert jumped out at them against so many other bland ones. It really doesn’t take much to stand out, and therefore get the best people applying for your role.

Use the interview as the opportunity to properly get under their skin. 

Find out what makes them tick, and work out whether they’ll fit with your team. Don’t do this by intimidating them, but by putting them as much at ease as possible.

Think through their experience.

Are they welcomed warmly? Given a hot drink? Sat somewhere comfortable, with table dynamics not overly intense? You want them to relax and open up, not crumble from nerves.

Ask them to do a trial.

It can be a full day, or a few hours. Have a good task ready that will help assess their key skills. Not only does this enable you to test what they’ve told you at interview, but it allows them to see your environment and make sure it’s the right one for them. It’s easy to view your company through your eyes and sell it as the best place ever – only for them to start work and find it not what they were expecting. You want to prevent this from happening and save a difficult conversation six months down the line.

So, those are some tips for recruiting experienced people, but if you can’t even find them to begin with, then what?

I eventually settled on ‘growing my own’ as the way to scale Para-Sols because I just couldn’t find the right paraplanners to help build my business. And I’ve expanded that into compliance and now operations. So ‘grow your own’ can work phenomenally well – but you need to be prepared to put the work in, and accept it isn’t a super-quick fix.

Plot out the role, both at outset and for the career path.

People joining fresh from outside finance, in a trainee role, will want to know what opportunities are available for them to progress into, not just the initial role they will start in

Consider your age range.

We mostly recruit graduates. We tried college leavers; had an assessment day booked for 10 of them, and only one turned up. Of the other nine, one got in touch to apologise for not being able to make it, and the others disappeared, seemingly off the face of the earth.

Success rates with graduates have, in our experience, been far, far higher.

Think about how you will assess them. 

A traditional interview is unlikely to work as they won’t have much, if any, relevant experience for you to draw on. Likewise, a trial day can be difficult to manage if they can’t yet do the tasks that you are hoping to train them in.

We run assessment days instead, but ones that mirror our recruitment ethos of putting them completely at ease, so we can truly see their personalities and work out whether they’ll fit in with the existing team.

Be prepared to be flexible.

We’ve found that the majority of our graduates are sponges for information and want to learn and develop really quickly – so we need to be able to support that. Some, however, will want to pace their studies so they have a better work/life balance, and that’s just as important. We have a structure that enables them to go at their own pace.

Check out our recruitment tool, The Grad Scheme here.

Cathi Harrison – Founder & Director

After speaking at a seminar recently, it became scarily apparent to our Founder and Director, Cathi Harrison, how little notice adviser firms had taken of the FCA’s PROD (Product Intervention and Product Governance) regime. 

She spoke to Money Marketing about the issue in this article.

It’s a full-time job keeping up with the changes and developments in any one area of financial planning, let alone all the major areas. We tend to find that people focusing on one particular type of planning can mean forgetting about more niche aspects that can have quite an impact in other areas.

We’ve considered what might be some of the ‘forgotten’ areas in planning and created a small list. This first one will focus on estate planning. People are by now familiar with the complexities of the Nil Rate Band (and especially the RNRB) and the use of trusts/insurance/gifts and business relief (BR) to mitigate tax. There are three things, however, that we have identified as either causing an unintended problem for clients, or being aspects not always accounted for in inheritance tax planning.

  1. Annuity guarantee periods and value protected lump sums can form part of the estate for inheritance tax purposes

Unless the beneficiary of a guaranteed period under an annuity is the legal spouse, a value needs to be attributed to the estate for inheritance tax purposes. HMRC provide a calculator for calculating the ‘open market value’ of the outstanding income. This figure would be included in the individual’s estate for inheritance tax purposes.

For those aiming to minimise Inheritance Tax and with Defined Benefit/Annuity pensions and no spouse, this is something to consider. For example, if an individual died 5 years into the guarantee period, and the annual income was £25,000 per annum (increasing at 2.50% per annum), the HMRC calculator yields a figure to be included in their estate of £83,738.

What this means is that it is not simply a case of the assets in the estate that need considering for inheritance tax planning, but also the ‘notional value’ of a guaranteed income.

Value protection is another popular form of annuity protection available. This is more straightforward and represents the net payment to the estate. The ‘net’ aspect is due to whether the benefit is taxed or not (death before or after 75). As much as value protection aids in annuity purchase planning, potentially 40% of the ‘tax-free’ benefit paid back can be lost to IHT which would otherwise have not been the case within a pension! Again, this supposes there is no spouse to receive the value protection lump sum.

  1. The two-year IHT rule on pension switches does not benefit from the spousal exemption

Pension death benefits and IHT again. The calculation of the ‘transfer of value’ has been somewhat simplified by the ability to use UFPLS in place of a 10-year guarantee period, but it’s worth noting that even if the spouse receives the value of the pension death benefits from the new scheme, the ‘transfer of value’ is not exempt.

This is because the transfer of value is between two trust (pension) schemes.

Some good news to counteract this though, the calculation of the ‘transfer of value’ is usually a LOT lower than the fund value or CETV.

Essentially, you are working out the net UFPLS value (based on the individual’s actual tax rate) and subtracting this from the Fund Value/CETV to find the ‘transfer of value’

You can also discount the original value to reflect the time of life expectancy – though this is unlikely to be by more than 5% / 10% based on the 2-year aspect.

A very simple example of this is if an individual had no taxable income and accepted a CETV of £170,000, the net UFPLS could be:

£42,500 is tax-free as 25% of the fund

£127,500 is taxed as:

  • £37,500 at basic rate = £7,500
  • £90,000 at higher rate (no Personal Allowance) = £36,000

Net value = £170,000 minus £43,500 tax = £126,500

The transfer of value, before considering any ‘discount’ factor, is £43,500 as this is the ‘loss to the estate’ in this calculation. This is despite that in reality, this isn’t a loss to the estate as the calculation uses the CETV in both instances, instead of the actual Defined Benefit death benefit structure!

The two-year rule, and the calculation to check the value is ultimately something to be aware though, in reality, it is unlikely to be a significant figure relative to the CETV that a client is securing for their estate by transferring.

  1. Too much cash (or investments) within a business can impact eligibility for Business Relief

Successful companies can end up with quite large retained profits on deposit, particularly if the proprietor is not drawing much of the profit as remuneration or reinvesting into the company. Whether this cash is invested on the company’s behalf or retained on deposit, there can be tax issues down the line for the owner(s).

In terms of Business Relief, and hence efficiency for inheritance tax planning, excess cash in the company can all foul of ‘excepted assets’ rules. This seeks to prevent personal assets held within a company to provide shelter from inheritance tax.

While many businesses’ legitimately keep reserves in place for a variety of reasons, including not least as a buffer against a future economic downturn, HMRC takes the view that this is not sufficient reason for cash to be retained with the company.

What HMRC appear to look for is evidence of business planning for the funds and this could take the form of written plans for future cash use.

The ultimate implication is that the value of the business assets made up by this proportion may not qualify for Business Relief. This could introduce a potentially large amount of assets in the estate value and derail some of the planning otherwise made!

The same is potentially true of general corporate investments. There is no general distinction between cash or investments in this manner so if cash held by a business is deemed not to be for legitimate business use, investments will likely be so too (it would probably be harder to prove legitimate business use for an investment).

This obviously doesn’t mean a business should not hold surplus cash or invest, but it does mean business owners cannot necessarily be assumed as having 100% exception to IHT.

Grant Callaghan – Head of Paraplanning

Next up: Forgotten planning points around pensions (unrelated to Inheritance tax this time).


You may have seen recent articles and statements on slight changes to the way HMRC deal with bond chargeable events. You may, or may not, have also heard about a tribunal ruling in April which HMRC lost (but are appealing) about the way in which an investor’s Personal Allowance is dealt with when surrendering a bond. This article covers how bond gains are assessed for tax and considers the Personal Allowance aspect.

Top slicing and surrenders

The development here is accounting for the Personal Savings Allowance (PSA) when dealing with surrenders of both Onshore and Offshore bonds. A significant number of clients are likely to have some or all of entitlement to a PSA. As a reminder, these rates for 2019/20 are:

  • PSA is £1,000 if total income (which includes the gross bond gain) is below the higher rate tax threshold.
  • PSA is £500 if total income (again including the gross bond gain) is above the higher rate tax threshold but below the additional rate threshold.
  • No PSA if income (including gross bond gain) is above the additional rate threshold.

Scotland; the PSA is set and covers the whole of the UK and so for the purposes of entitlement to PSA, the tax bands used in England, Wales and Northern Ireland should be used (note, this could create a quirk where a Scottish Higher Rate taxpayer is entitled to the Basic Rate PSA).

Calculating the gain and tax payable is governed by a 5-step process. For the purposes of this calculation, we will assume an investor has an offshore bond valued at £80,000 which was bought for £60,000 five years ago. The client’s income (non-Scottish taxpayer) is £43,000.

Step 1: Calculate total income for the client, considering where the gain falls

Client total income: £43,000.

Bond gain: £20,000.

No savings income or dividend income.

Total: £63,000.

PSA entitlement is the full £500 based on the above total income.

Step 2: Calculate the overall tax liability on the bond gain – Deduct a basic rate tax credit from the total gain (even with an offshore bond)

Bond gain: £20,000.

Amount in basic rate threshold: £7,000.

Tax at 20%: £1,400.

Amount in higher rate threshold: £13,000.

Tax at 40%: £5,200.

Total: £6,600.

–  Basic rate tax credit on full bond gain: £4,000.

–  Tax of £6,600 minus credit of £4,000 = £2,600 liability.

Step 3: Calculate the annual equivalent (top-slice)

Full gain of £20,000.

Divided by 5 years.

Annual equivalent: £4,000.

Step 4: Calculate liability to tax on the annual equivalent. Note: use any PSA available here to reduce the gain. Reduce the tax figure by a basic rate tax credit previously used (even though this is an offshore bond)

Annual equivalent: £4,000.

Minus Higher rate PSA of £500 = £3,500.

Taxed at 20% = £700.

Minus basic rate credit of 20% on the whole slice = £800.

£700 – £800 = nil.

The above figure is the ‘relieved liability’ which will be negative if all of the slice is within the basic rate band (due to the PSA).

Step 5: Deduct the figure in ‘Step 4’ from ‘Step 2’ to find the top-slicing relief provided

£2,600 liability minus £0 = £2,600.

The overall tax charge of £6,600 can be relieved through top-slicing by £2,600. This gives a charge of £4,000.

The charge of £4,000 is also simply the result of applying basic rate tax to the whole gain of £20,000 which reflects the more traditional approach of noting that the top slice will be below the higher rate threshold and applying basic rate tax to the gain as a whole.

Where the ‘annual equivalent’ (the top slice) straddles the basic and higher rate bands, however, the steps here will ensure the correct process is used.

This can be shown by changing the client’s income to £48,000 per annum and running through the steps again:

Step 1: Calculate total income

Total Income (£48,000) plus bond gain (£20,000) = £68,000.

PSA is again, £500.

Step 2: Calculate total tax liability

Bond gain: £20,000

Amount in basic rate threshold: £2,000

Tax at 20%: £400

Amount in higher rate threshold: £18,000

Tax at 40%: £7,200

Total: £7,600

–  Basic rate tax credit on full bond gain: £4,000

–  Tax of £7,600 minus credit of £4,000 = £3,600 liability

Step 3: Calculate the annual equivalent – as before £4,000

Step 4: Calculate liability to tax on the annual equivalent

Annual equivalent: £4,000

Minus Higher rate PSA of £500 = £3,500

£2,000 within Basic $ate tax band charged at 20%: £400

£1,500 within Higher Rate tax band charge at 40% = £600

= £1,000

Minus basic rate credit of 20% on whole slice = £800

£1,000 – £800 = £200

Step 5: Deduct the figure in ‘Step 4’ from ‘Step 2’ to find the top slicing relief provided

£3,600 liability minus £200 = £3,200

The overall tax charge of £7,600 can be relieved through top-slicing by £3,200. This gives a charge of £4,400.
The Personal Savings Allowance provided relief against tax and the use of the remaining basic rate tax band provided relief against the whole gain being taxed at 40%.

If the above bond were Onshore, a basic rate tax credit of 20% on the whole gain (again £4,000) would be used at the very end to reduce the tax payable to £400.

Personal Allowance

The background of this is a bond surrender case in which HMRC lost a claim brought by an individual. The summary can be found here or here.

For years, individuals have been basing entitlement to Personal Allowance on the full gain on the bond (i.e. no accounting for top slicing for this test) and this has had the unwelcome effect of a large bond gain being untaxable in itself (due to top slicing) but causing other earned income to suffer tax.

The main implication of this is that we see income earned elsewhere now subject to Basic Rate tax. This has the effect of incurring an extra £2,500 in income tax in cases (based on 2019/20 Personal Allowance of £12,500).

The more damaging implication for clients will be where the loss of the Personal Allowance results in the top sliced gain crossing the (now reduced) threshold for higher rate tax.

With a full Personal Allowance, an individual can have an income of £50,000 (£12,500 Personal Allowance and £37,500 Basic Rate bracket) before Higher Rate tax is an issue.

If the Personal Allowance is lost through the gross bond gain being of sufficient value, the top sliced bond gain and all other income will need to be below £37,500 to avoid the double whammy of creating tax charges on the bond surrender.

As an example, if a bond that started at £200,000 was invested for 20 years and had a surrender value of £350,000, the gain would be £150,000. Top sliced, this would be £7,500.

If a client had earnings above £30,000 from elsewhere, the top slice would fall within the Higher Rate threshold and create a greater tax liability for the bond surrender. It would also result in £12,500 of those earnings elsewhere being taxed at 20% rather than a zero rate.

The ruling could, however, change this. If this is upheld, it could be a case that the top slice is added to earnings with the Personal Allowance still in place. In this scenario, £30,000 + £7,500 is well within the £50,000 limit to avoid Higher Rate tax. It would seem that the Personal Allowance remains lost for the purposes of taxing other income, but this would at least avoid two elements coming into tax at once.

Regardless of the development of the ruling, it still makes sense to keep a gross bond gain below £100,000 when added to other income. If a bond has more than one segment, it is relatively straightforward to surrender across segments to create the level of gain needed. With only a single segment bond, however, partial surrender (i.e. an excess event) is required and more care is needed here (as the chargeable gain is not necessarily related to economic performance of the investment).

Grant Callaghan – Head of Paraplanning