Making the tax year-end less taxing for advisers – Les Cameron highlights some of the technical support facilities and resources which are available to advisers and paraplanners

As the financial planning profession gears up for its busiest time of year, there are many excellent resources available to help advisers and paraplanners to deal with complex tax planning scenarios for clients. We talk to Les Cameron, Head of Technical at Prudential, about some of the particular ways that he and his team can provide this important help.

  1. The tax year end is a busy time for planners, advisers and paraplanners but what about for you at Prudential? Do you see an increase in enquiries from advisers at this time of year? 

Yes, it’s a very busy time for us at Prudential – especially for the technical support team. In 2017, we handled 17,500 calls and emails from advisers and paraplanners, however over a third of these were in Q1. Clearly there is a direct correlation between us being busy and advisers and paraplanners experiencing one of their busiest times of the year.

March was our busiest month of 2017, when we had 2,100 calls from advisers or paraplanners, with the majority of those being about pensions. Our next busiest month saw 1,800 calls. All year we are busy fielding adviser enquiries about taxation and trusts – subjects which we find generally advisers need a lot of support around. However, during Q1 it is pension queries which are in the majority ahead of the tax year.

In the world of pensions, there are three key topics which tend to dominate at this time of year. They are:

  • The annual allowance
  • The lifetime allowance
  • Tax relief

The annual allowance is very complicated now. There are different variants of it depending on whether the client has accessed benefits, is a high earner etc. There’s the money purchase annual allowance, tapered annual allowance and the normal annual allowance, with carry forward thrown in for good measure. These are all areas where I believe advisers need additional support when dealing with these more complicated client situations, and we’re ideally positioned to do just that.  That’s why we’re so busy!

  1. What specific opportunities does Prudential provide in order to help build and develop adviser core competence, their all-important technical knowledge and planning skills? Can you give us some examples of how this is done in practice?

Most of my team’s time is dedicated to supporting advisers, and this happens in many different ways:

  • Direct contact

This is the most direct way in which we support advisers.  Advisers will phone our Technical Helpline with a particular query, simple or complex, and we’ll try our best to answer it for them.

We also operate a CPD accredited WebEx programme throughout the year, where we aim to cover a broad mix of content on areas around the advice process as well as on more technical matters too. We sometimes feature guest presenters, for example we held a session with Rory Percival recently on DB transfers and due diligence etc. which was very well received.  We’ve had over 13,000 advisers and paraplanners join us online for the programme in 2017, and delivered over 30 hours of CPD. And I’m delighted to say that 95% of attendees have told us that their experience of it has been either good or excellent.

  • Oracle Quarterly Magazine

My team also contributes content for our quarterly magazine called Oracle, which goes out to over 3,000 advisers. It covers a range of technical areas such as investments or pensions and is full of planning and development content to help advisers with their business. Based on adviser feedback we’ve received, there are a few format changes in store. Traditionally we’ve focused on meaty articles, and we go into these in quite some detail.  So we’re now moving towards more of a magazine feel, still with some large meaty articles, but also with some shorter ones, to make it easier for advisers and paraplanners to pick up and put down. It’ll be interesting to see what feedback we get. I’ll be guest editing the January edition in the new format, so I hope that readers like what they see.

  • Oracle Technical Newsletter

This is produced online on a monthly basis. It’s emailed to all of our advisers and paraplanners, and provides a monthly digest of key legislative and regulatory changes. If we get a flood of adviser queries coming through on a particular topic to the helpline, we’ll use this insight to help us shape the content for the next newsletter. For example, if all of a sudden chargeable lifetime transfers are flavour of the month, we’ll look to do something focused on that in the following month. Both the Oracle quarterly magazine and the Oracle Technical monthly newsletter are CPD accredited. If advisers read all of them they’ll have over 14 hours of CPD, which can be a big help to them.

  • PruAdviser Knowledge Centre

This area on the PruAdviser website gets thousands of visits every month.  Our general ethos here is that we’ve probably got just about every subject that advisers and paraplanners would need to know about mainstream financial planning from a technical point of view. For example we’ve got information on how annual allowance works, how IHT works and case studies.

  • PruAdviser Knowledge TV

Here we operate a different approach, providing CPD video box sets on topics like the annual allowance, understanding life assurance bonds etc. The videos take around five or six mins to watch and cover a range of topics. They’ve been viewed heavily by advisers over the last year and we expect that to increase going forward.

I’m very pleased to see the resources we offer seem to be very popular and well received. This is great, as supporting advisers and paraplanners’ needs are very important to us. We always strive to give market-leading technical support and I strongly believe that we are doing that.

  • Seminars

We run seminar programmes in Q1 and Q3/Q4 each year, often teaming up with other organisations such as SIFA or the ICAEW, particularly if it’s topical.  These are popular with advisers. The next wave of seminars start January 2018 and are called ‘Planning Matters’. These seminars concentrate on helping advisers deliver their clients’ income needs.

Our CPD activities are accredited by PFS and also CISI so this helps advisers to meet their structured CPD responsibilities more easily.

  1. Are there particular tax planning tools that Prudential provides which advisers find particularly useful when it comes to year-end planning work?

We’re very proud of the tools we provide on our PruAdviser website. They are there to help advisers crunch the numbers and ensure the right outcome for their clients. They are always popular, but particularly so at tax year-end.

For those not familiar with them, the three key tax planning calculators which are useful right now are:

  • The annual allowance calculator. This is a popular one all year round. It helps advisers to do the annual allowance calculations, with carry forward and tapered annual allowance too. We upgraded this calculator last year to give an improved user experience and it’s mobile friendly.
  • Tax relief modeller. This helps advisers to calculate a client’s tax bill based on the annual income which is entered. It’ll indicate where making pension contributions can mitigate or help reduce the liability. Advisers can therefore model the client’s position before and after a pension contribution is made, so the client can clearly see the impact it would make. It also shows what the effective rate of tax relief might be – interestingly, it is possible to achieve over 100% tax relief in certain circumstances. It deals with all the various types of income for e.g. from investment, earnings and capital gains, which can make the task quite complicated. This tool helps make the work much easier by crunching the numbers for you. Actually, this tool is my favourite.
  • Extracting company profits tool. This is very topical given the changes to dividend taxation that we’re seeing now. The removal of the dividend tax credit, replacing it with the £5,000 dividend allowance was a significant change for many – especially business owners. It’s important to look at how they extract the profits from the business in the most tax efficient way.  This is a simple tool to use – you just have to input how much profit is available to spend to start with. You can then put in different options around salary, dividends and pension contributions. This should be very topical again given that the £5,000 allowance is reducing to £2,000 in April. In principle, the big change was the removal of the dividend tax credit and subsequently we have seen people changing their remuneration strategy and favouring the use of employer pension contributions as opposed to taking the money out of the business.

As well as these, we have plenty of other tools online for different purposes such as IHT, OEICs and bonds, but these are not so tax year-end specific in their use.

  1. Estate planning strategies are always important considerations, but particularly so at this time of year. Could you talk us through some of the more interesting options which are available for advisers and paraplanners to consider as they look to help -clients minimise the IHT chargeable on their estate? 

Of course, it isn’t specific to tax year end, but clients do have the annual exemption of £3,000 to use. This has been frozen since the 1980s, and since then IHT has been a growing problem.  The overall IHT tax take has reached £5bn for the first time in a calendar year and the Treasury is projecting that it will surpass £6bn by 2021.  Advisers are regularly coming to us with questions on the topic of IHT as it can be complicated. But getting back to tax year end specifically, it makes sense to use clients’ allowances no matter how small – to chip away at the value of estates that would be liable to IHT. Also it pays to remember that last year’s gift allowance is available too if it hasn’t been used already, and also to make the most of the allowance for both spouses.  Doing this could result in £12,000 being removed from the clients’ estate immediately. This capital could then be gifted away perhaps, outright gifts or the grandchildren’s JISA’s perhaps.

How about this for a planning idea? Personally, a strategy which I think is underutilised is paying into someone else’s pension for them. Many still believe it is just £3,600 gross that can be paid into a pension for someone else, but actually what is allowed is up to 100% of relevant earnings for that person.

The numbers are compelling!  The person who makes the payment can use up their annual exempt amount of £3,000, thereby immediately reducing the value of their estate. The £3,000 pension contribution is then treated as if it was paid by the pension account holder so they’ll get basic rate tax relief – taking it up to £3,750 straight away. If clients are contributing to their grown- up children’s pensions – say for example a child is in their 30s and a HRT payer, they’ll get HRT relief on the contribution as the income tax benefits fall on the pension holder not the person paying.

You can get to a place where, with one simple use of the annual exempt amount of £3,000, you could get 90% tax relief.  There is the £1,200 in IHT for starters; £750 tax relief at source on the pension contribution and then the higher rate tax relief could bring another £750 – £2,700 relief on a £3,000 gift I think it’s a great IHT planning strategy. Also, from a psychological point of view, many clients might also like the idea that the money is not accessible until age 55 so they are helping to provide for their offspring’s future rather than giving them money which they could “squander” now.

  1. Which tax changes taking effect in the 2018/19 tax year do you think advisers need to be particularly aware of?

The key change will be the dividend allowance reducing to £2,000.  There are two elements to look out for here:

  • Remuneration strategy. For clients taking the same level of dividends, this means they’ll be paying more tax. There are alternative options though, invest within the business and take the dividends later on make employer contributions into a pension instead and get the corporation tax relief.
  • Investment portfolios. To use CGT allowances, it is likely that many advisers will be selling clients’ holdings in OEICs to realise gains at this time of year. It is well worth considering whether to buy those back within a tax wrapper instead – be that a pension, ISA, or bond. At the moment, clients can hold in the region of a £150,000 investment portfolio with the corresponding dividend yield coming it at around £5,000. However, with the dividend allowance reducing to £2,000, then just a £60,000 to £65,000 portfolio is likely to generate such a tax efficient level of dividends. As advisers will know, a large part of overall return is reinvested income so sheltering that income from tax during the investment horizon could make sense for many.
  1. Prudential has a broad range of products to suit different client needs, but which tend to be most popular at tax year end?

Our most popular ‘product’ is an investment solution called PruFund. This is a large multi-asset ‘smoothed’ fund which is available through all the main tax wrappers -offshore and onshore bond, ISA and pension. We also have a range of OEICs.

The main question we should be asking is which are the most popular wrappers at tax year end. The answer to this is clearly the pension and ISA wrappers. It’s the time of year when advisers will be making the most of any unused ISA allowances and also finalising the amount of pension contributions which can be made. For many, especially business owners, it is only as we near tax year-end we know how much could be payable into their pension. Many business owners have their year-end as at 31 March.  It’s such a busy time and it’s so important to get this right for clients.

When it comes to ISAs, another key thing to consider is not just about when we use the ISA allowance but where we place the monies. There is about £270billion in cash ISAs at the moment. Inflation is running at around 3% and, generally speaking, cash ISAs will be generating interest of around the 1% mark if they’re lucky. Clients who have money invested in these accounts are losing money in real terms. They are not generating real return that way, yet the amount in cash ISAs went up by £20bn last year. No doubt, advisers will be having conversations with clients about the benefits of investing as opposed to just holding cash as a longer term holding, to try and overcome this problem.

  1. Are there any other things that you think advisers and paraplanners should be looking out for in the near future?

Well, thankfully, the 2017 Budget was relatively quiet from a financial planning perspective, especially in the area of pensions. It was good that things haven’t become more complicated, and it has made the tax year end planning slightly easier as there were no new changes announced to factor in. There is also no Budget in March now.  The Chancellor will have a spring statement, although major announcements are likely to be held back until the Budget in November so that should make things a bit easier too.

There are a few things to look out for in the planning world. A consultation has been announced on trusts, and it’ll be interesting to see where that leads us. The DB transfer consultation response is due in Q1 2018 and the outcome of that is keenly awaited.

Finally, tax year end is the 5th of April – things can be complicated so I’d probably not leave it that late to be trying to get things done!

For more support around Tax Year End visit Prudential’s dedicated hub at www.pruadviser.co.uk/taxplans

About  Les Cameron

Les Cameron is head of technical at Prudential, based in Craigforth, Stirling. Les covers most areas of financial planning, specialising in the pensions technical arena. Les joined Prudential in 1997 and has held various pensions technical and management roles throughout his career. Les holds the Advanced Diploma of the Personal Finance Society and has a BA in Financial Studies.


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