Tax Planning

In response to advisors, the pandemic has delayed essential tax planning choices

The survey results were published after research by Vouchedfor on behalf of Octopus Investments

People have been delayed in making financial decisions, including major tax planning, due to the pandemic, according to a new survey of 700+ financial advisors. The research commissioned by Octopus Investments and conducted by VouchedFor1 found that six out of ten (61%) advisors had clients who were delaying financial decisions due to the pandemic.

Communication has been identified as a possible cause of delays. A quarter (26%) of advisors said that despite the increased use of technology, it had become more difficult to communicate with their clients during the pandemic.

James Hawkins of Isca Wealth Management said:

“I find one of the biggest barriers to writing business is with customers who want to talk but never really move on. It’s not that customers don’t want this, but it can take them a long time to make a decision. Unfortunately for some customers the lockdown was a good excuse to say, “I’ll tell you what, let’s wait for this to pass.”

Tax efficient investing

More than half of the consultants surveyed (53%) said they have clients who could benefit from tax efficient investments but have not yet looked into the matter with them. Because of their higher risk profile, it was particularly important for these products to be able to communicate effectively with customers. 38% of the advisors named the increased risk as an obstacle to the advice.

Paul Robinson, Director at Moneyweb IFA said:

“In any inheritance tax plan, the sooner a customer starts, the better the position. The problem won’t go away if you don’t do anything about it. And ultimately, delaying calls could cost a customer 40% of their assets. “

Paul Latham, Managing Director of Octopus Investments added:

“Not all tax planning is seen as urgent, but estate planning is certainly an area that some clients cannot afford as it is often difficult to predict when it might be needed. The clock is always ticking. ”

The study highlighted the benefit of consultants speaking to their clients about tax planning solutions before anyone else did. Of the respondents, 39% of the advisors stated that by recommending tax-efficient investments they had ensured that they did not lose clients to other advisors or asset managers. It has also helped consultants grow their business. Four in ten (40%) said advising on tax planning products resulted in advising more assets for their clients.

Evolving tax planning needs for retirement

The study went beyond the short-term challenges of the pandemic and identified possible changes in people’s needs for retirement planning in the future.

Eight out of ten (81%) of the consultants surveyed expect that life-long retirement benefit (LTA) will have more of an impact on their clients in the next decade (the survey was conducted in January before the LTA freeze announced in March). A similar proportion (79%) also said that customers have become aware that they will need access to their money later in life, suggesting that more flexible estate planning options may be needed.

Those were the same two areas that financial advisors have identified as drivers of tax efficient investments over the next five years, according to financial advisors.

Which of the following are most likely to drive demand for tax efficient investments? (Top five)

  • Customers who have an inheritance tax liability – 79%
  • Customers Likely to Be Affected by their Lifetime Retirement Benefit – 76%
  • Customers who sell or have sold a business – 65%
  • Customers who are entrepreneurs or self-employed – 60%
  • Customers expecting a capital gain – 51%

Paul Latham, Managing Director of Octopus Investments said:

“In the past ten years, pension contributions have been increasingly restricted, particularly due to the lifelong allowance. Now that it’s frozen through 2026, more people are at risk of being trapped on the net and I think we are likely to see increased demand for tax efficient alternatives as a result. Similarly, there is a risk that more people will be affected by inheritance tax as the Nil Rate Band and Residence Nil Rate Band are also frozen. The government has estimated that IHT will generate additional revenue of GBP 1 billion over this period2.

“The other important factor is that we all live longer. This clearly has many financial planning implications, but it can make estate planning especially difficult. This is mainly because the usual strategy of gift giving is riskier as it is difficult to know how much money you will need in later life.

“This is where investments eligible for Business Property Relief could become more popular as they can be passed on without inheritance tax if they have been held for two years. Since the asset itself is free from inheritance taxes, it does not have to be given up before death and the customer retains complete control over their money. “

Susie Bewell, Raymond James Investment Services added:

“Customers tend to see estate planning in black and white – we can keep the assets or give them away. Once customers understand that it doesn’t have to be as inflexible or expensive as they might have thought, they are much more open to considering estate planning sooner. “

(1) Research by VouchedFor via an online survey of 714 financial advisors in January 2021.

(2) HMT Treasury – Budget 2021: Policy costs

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