hbfs supplement

www.hbfs.co.uk

Inside this special wealth management supplement:

– The value of using a Financial Adviser

– Make the most of the Governments tax giveaways

– Don’t let the taxman be your major beneficiary

– The Pension Rollercoaster

– Resident Non-Doms – is the party over?

– Offshore and proud

– Investing is not all about property

Investing doesn’t have to be boring.(It’s just better that way.)

As technology progresses and information is readily available to everyone, more and more people have access to knowledge, previously the preserve of professionals. You can book your own flights and hotels, you can self diagnose you aches and pains and you can buy life insurance, car insurance and get a mortgage quote without interacting with a human at all.

So can you do that with Financial Advice and Investments? Many people we come across do set up their own ISAs, choose funds or shares and trade to varying degrees of success. There are a growing number of Internet-based platforms that offer the tools to do this.

If you enjoy researching stocks and shares, and fancy yourself as a part time investment guru, you may enjoy investing in this way. Indeed many of our Advisers at HBFS have their own accounts – just to indulge their own investment hunches.

So why pay an Adviser to do this for you?

The real value of an Adviser comes in two forms – Financial Advice and Wealth Management. There are Advisers who do the former only. They do the planning, set up the structures, and send the money off. Others then do

the Wealth Management. They decide on asset allocation, choose the funds and make changes over time. Wealth Managers often have no interest in giving financial advice. Interestingly, the major banks largely pulled out of Financial Advice some years ago, but still manage money.

HBFS, along with others do both. We tell you how to hold money, whether it be in an ISA, Collective Investment Account (for Capital Gains), Pension, Offshore Wrapper, Trust or even a Charitable Account. We tell you who should hold it, whether it be jointly, in children or grandchildren’s names and we tell you where you should hold it – here in the UK or in an offshore wrapper – declared in the UK as required, but with the benefit of postponing tax well into the future and therefore benefitting from significant tax advantages.

As for the investments themselves, we take full responsibility for managing the portfolios. We spend time visiting Fund Managers,talking to them about their plans and strategy and watching their performance – almost daily. This level of involvement at fund level cannot be replicated by a personal investor in their spare time. The benefit of not being tied to a particular investment manager allows us to sit back and look at who is the best in each sector and who shines, not just in the past but hopefully in the future as well.

As a result we are well placed to offer Financial Advice and Wealth Management blended together for our clients’ benefit.

Can it be worth it to use an Adviser?

HBFS | Wealth Management

ISAs are Individual Savings Accounts, a Government scheme allowing individuals to build a portfolio of cash, shares, and unit trusts free of tax on dividends, interest and capital gains.

There is no personal Income Tax or Capital Gains Tax liability on either the investment growth or any income taken. Nor is there a need to declare or report ISA investments on your Tax Return.

We can manage your ISA portfolios and aim to produce average net growth of around 5% per annum in a low-risk portfolio. What could this mean to you?

Fill up this year’s ISA allowance of £15,240 per person and continue making maximum contributions of £20,000 from next year and in just ten years (assuming the allowable contribution rate does not rise even further and a net return of 5% pa) a couple will have ISAs worth over £500,000. Carry on for a further 6 years and your next round of contributions will see your combined ISA pots exceed £1 million pounds in value.

That’s over a million pounds of tax free cash to be used without restriction in just 16 years.

The Government giveaways do not stop there.

In our experience, most people do not use their annual Capital Gains Tax allowance. This is currently £11,100 and any Capital Gains up to this amount are not taxed. We can help you utilise this allowance by investing in an onshore investment account. The money is invested in regulated funds and we build your portfolio in the same way as we do for all other investments, irrespective of the structure or tax wrapper in which it is held. Again, we aim to produce average net growth of about 5% per annum in a low-risk portfolio.

The growth in capital value will be subject only to Capital Gains Tax. Through our careful management we can trigger the gains each year so as to soak up your allowance and enable your investment to grow effectively tax-free.

Dividends and interest paid will be taxed separately.

If a couple investing £400,000 into an HBFS managed joint account achieved 5% capital growth, that is £20,000. Assuming, that their Capital Gains Tax allowance is not used elsewhere, this growth is less than the combined annual allowance of £22,200 and therefore free of tax.

We will work together with you to ensure that we trigger these gains and manage them according to your circumstances so as to maximise the tax efficiency of all your investments. We will then help you decide what to do next – that may be moving £40,000 into your ISA portfolios as we do as part of our ongoing service to many of our clients.

With the new Dividend tax allowance of £5,000 per person, and new lower rates of Capital Gains Tax – Onshore Portfolios are more useful and attractive than ever.

ISAs and Capital Gains – are you making the most of the Government’s tax giveaways?


The Illegitimate Child

Once, at a Seminar on Inheritance Tax, when Gordon Brown was Chancellor, the speaker pointed at an elderly gentleman and barked – ‘How many children do you have?’ ‘Three’ came the mumbled reply. ‘No you don’t,’ the speaker barked back. ‘You have four – three and Gordon. Gordon is your illegitimate child. The one born to you that you never spoke to all your life but will come back to you at your deathbed. The one that will have a double share in your inheritance – 40%, while your other three (legitimate) children will only receive 20% each.

Inheritance Tax (IHT) Planning is often overlooked by clients. The good news is there is an IHT threshold of £325,000 per person, which means that you will only pay IHT at 40% on your assets if they exceed this figure. The bad news, especially if you live in London, is that your house alone is probably worth far in excess of £325,000.

There are however, a few steps you should think about following to minimise your Inheritance Tax liability:

Make a Will

If you die without making a Will, known as ‘dying intestate’, your assets will be distributed according to statutory rules, which could result in a higher IHT bill and assets being inherited by people you may not wish to do so.

Make use of the available exemptions

You can gift up to £3,000pa (annual allowance) which is immediately exempt from IHT – it is also possible to back date this payment to the previous tax year. £250 can also be gifted to as many people as you wish.

There is also the wedding gift exemption whereby parents can give up to £5,000 to the happy couple, grandparents can also give £2,500 and up to £1,000 can be given by anyone else.

You can make gifts out of surplus income which are free from IHT. To qualify, these gifts must be part of normal expenditure, be paid out of income and must not reduce your standard of living.

Gifts to charity are IHT-exempt and since April 2012, estates that leave 10% or more of their total assets to charity pay a reduced IHT rate of 36% on the remainder of the estate liable to IHT.

Set up a Trust

An Absolute Trust leaves your gift to named individuals whereas a Discretionary Trust allows the appointed Trustees more flexibility to distribute the Trust property. You can appoint yourself as a Trustee and you may, depending on your needs, have access to the capital or income. In either case, all growth generated will be immediately outside

of your estate but the initial gift will taper out of your estate over 7 years.

There are also less well-known, but very effective Trusts such as the Discounted Gift Trust and Loan Trust, that can provide powerful IHT mitigation and allow you to still have income and even take back your capital. These more specialised Trusts certainly require expert financial advice.

Death Benefits

You could set up a life policy to cover the IHT liability your estate will generate but this can be costly depending on the amount you wish to insure, your age and state of health. The life policy would be placed in Trust, which could allow the estate executors to pay any IHT liability.

With your pension, complete a Letter of Wishes to make sure that when a death claim is paid the pension benefits are paid to the right people and in the most tax efficient manner.

Depending on your circumstances there maybe a few more steps you will need to consider. However the biggest and best step you should follow would be to seek the advice of a Financial Adviser.

Don’t let the taxman be your major beneficiary.


The Pension Rollercoaster.Over the last two years, pensions have gone through a number of important changes that will affect almost every individual who is approaching retirement age or thinking about funding their pension.

April 2015 saw the most radical change to personal pensions in a generation, with the ‘Pension Freedoms’ rules being introduced. Essentially, this opened the door to pension savers to withdraw the full value of the their pension fund, subject to their marginal rate of tax, whereas before, the main recourse was to purchase an annuity. On the surface, providing individuals with greater access to their hard earned savings must surely be a positive step, placing control back into the hands of the consumer – but it depends.

With the Pension Freedoms reforms, savers can use the accumulated cash in their pension to pay off a mortgage or settle debts, or invest in a plethora of investments, such as Offshore Wrappers or Individual Savings Account (ISA) Funds, that may provide a better return. However, most pension platforms enable investors to benefit from an extensive selection of regulated investments, so access to investments should not really be a driving force for pension withdrawal.

There is the danger that without proper advice and planning some may rush out to make that luxury purchase, that in the long term they may not be able to afford, or enter into unregulated investment schemes in the search for a quick buck. For others, the problem may lie in not knowing or understanding that a pension serves as an Inheritance Tax tool to age 75, but if withdrawn, the funds go back into their Estate and with it, a potential Inheritance Tax liability for their children.

We must not forget that pension contributions can still attract tax relief at your highest rate and that pension savers get 25% ‘tax-free’ lump sum, which serves to reduce the rate of tax paid on the entire fund.

We have seen a gradual reduction in the annual pension contribution limit since 2006 when it stood at £255,000, to £40,000 per annum today. The reduction leaves higher earners searching for

alternative ways to invest that will still provide them with tax advantages, such as the Offshore Wrapper, where growth in the wrapper is also tax free, just as in a pension, but there are no limits to the amount that can be invested.

This becomes even more relevant to those earning above £150,000 per annum, as their annual pension contribution limit is slashed to £10,000 per annum on a sliding scale.

The pension reforms and freedoms were designed to provide individuals with greater choice and simplicity, but planning for retirement remains complex and advice should be sought from an authorised and regulated adviser who understands your individual situation. Do not embark on the pension rollercoaster alone.


Way back, when Britain was still great and ruled the waves, Prime Minister William Pitt the Younger introduced a caveat to the Income Tax legislation allowing some people who had property in other parts of the Empire to shelter their investments from wartime taxes.

The idea stuck and developed over the years. A UK resident who is domiciled in another country has been allowed to only pay tax on money earned abroad when it is brought into the UK.

In 2008 HMRC tightened the regulations on non-doms and introduced the Remittance Based Charge (RBC), which allows non-doms to retain the non-dom tax advantages. The current level of RBC is £90,000 a year. Wealthy residents of the UK who were born abroad but may have lived here for 30 years, can buy the right to have multiple millions of

pounds offshore which is never taxed here, at a cost of £90,000 a year.

But it seems as if the party is over. In the summer budget last year, George Osborne announced his intention that as of April 2017, non-dom status will be totally abolished for anyone who has been a UK resident for 15 out of the last 20 years. This has massive implications for anyone currently paying the RBC to benefit from their non-dom status. The details of how it will work have not been published yet, but advisers to the res non-doms are working hard to find ways to help their clients.

Among the solutions and one where HBFS have a particular specialism, is the use of an Offshore Wrapper to hold and manage the assets. The beauty of this solution is that is takes full advantage of tax planning opportunities that even

a normal domiciled UK resident like you or I can use. It’s not controversial, it’s certainly not tax evasion, nor tax avoidance, and it is fully sanctioned by HMRC. In brief, an investment in an Offshore Bond grows net of all taxes until it is remitted to the UK. Not only that, but there is an allowance that 5% of the investment can be brought into the UK with no immediate tax liability – in fact no tax for 20 years or more. Trusts can be used to mitigate Inheritance Tax and the investors can even retain the benefit of a tax efficient income stream.

Res non-doms may be forced to lose their status but as res doms, all of us can benefit from tax planning opportunities sanctioned by HMRC.

UK Resident but Non-Domiciled: Is the party over?

Resident Non-Domiciled Summary of Changes from 6th April 2017

• Reduction in the number of years of residency in the UK before Offshore Income and Gains have to be included on UK tax returns from 17 years to 15 years

• Abolishment of the £90,000 Remittance Charge. All Income and Gains from Non UK situs assets will be taxed from 6th April 2017, whether they are brought into the UK or not

• No change to Offshore Wrappers – Income and Gains continue to roll up tax free even for UK Residents that have been in the UK for longer than 15 years


With the release of the so called ‘Panama Papers’, and the wave of disapproval over the word ‘offshore’, you would be forgiven for raising an eyebrow or two at the title.

Offshore Wrappers however, are far removed from the Panama Papers and other offshore ‘havens’. They are sanctioned by the UK Government, regulated by the Financial Conduct Authority (FCA) and have a special tax treatment under the Taxation of Chargeable Gains Act of 1992, by HMRC.

So what are they? They are essentially investment ‘wrappers’ – just like a pension or ISA, that can hold any fund, issued anywhere in the world (subject to approval – 3,500 UK-based funds are pre-approved), and all gains within the wrappers grow tax free, just like a pension.

An offshore wrapper is based (usually) in the Isle of Man and no tax is charged as it grows. The Chargeable Gains regime allows withdrawals to be made of 5% a year (this can be taken annually, quarterly or monthly) and paid into your UK Bank account, for 20 years. No tax is paid at that time and there is no need to report this on your tax return.

Less than 5% can be taken as well and the difference can be kept for the future. So 4% a year would be received tax free for 25 years, 2.5% for 40 years etc. Alternatively, 3% taken for 10 years would allow 7% to be taken for the next 10 years, still with nothing to report to HMRC.

This way, the wrappers can be used as a type of pension. Of course there is no tax rebate at outset, but it does grow tax free and withdrawals for 20 years (at the right level) are not taxed at all, unlike pensions which are.

After 20 years, withdrawals are subject to Income Tax, rather than Capital Gains. For a higher rate taxpayer this is 40% rather than 20%. This sounds less attractive. But let’s say you placed £1m into an offshore wrapper and took £50,000 a year for 20 years; if you placed £1 million into an Onshore Investment Account, you would need to take £62,500 a year, to receive the same net £50,000. After 20 years, the offshore wrapper would still be worth £1m but the UK Based equivalent would only be worth £586,675. (Assuming growth on both is the same at 5% p.a, all the UK Gains are subject to Capital Gains Tax only and all personal allowances have been used up elsewhere).

If you were to have placed the Offshore Wrapper into Trust to mitigate Inheritance Tax, and passed away at the 20-year point (assuming the trust has been in place for at least 7 years), all £1m is passed to your dependants free of Inheritance Tax. They could choose to carry on the investment, but taking the worst case scenario of them all being UK Higher Rate taxpayers, they would now pay income tax on the £1m, resulting

in a net gain to the dependants of £600,000. The Onshore equivalent would be subject to Inheritance Tax at 40%, leaving only £352,005 to the dependants, just over half the offshore equivalent.

Offshore Wrappers are an excellent regulated planning tool and even where tax is deferred and paid in full at the end of the term, the tax burden can be significantly reduced.

HBFS offers Offshore Wrappers entirely penalty-free at all times, with the backing of Old Mutual International, the largest provider of wrappers in the Isle of Man, with a dedicated team based in London and Manchester, at the same price as an equivalent UK based investment portfolio.

Proud to be Offshore.HBFS | Wealth Management

There are hundreds of investment funds vying for your money – so how do you sort the star performers from the dross?

In deciding what investments to choose, the first consideration is asset allocation – Cash? Property? Bonds? Equities? It is important to take into account what you have already. Many people come to us and ask for Investments in property. But how much of their personal wealth is already in property – and is that the right allocation?

If you still think your future is in bricks and mortar, you can’t do much better than the Henderson UK Property Fund (1). The figure in brackets is the Risk Rating*. This fund is invested in Commercial Property, providing diversification from the traditional Residential Property that many people have moved into during the Buy-to-Let boom. It owns the Coutts Building in the Strand, the Travelodge in Kings Cross and a well diversified £4bn property portfolio, bought debt free, and aims at 5-7% income a year.

For the investor that wants something different from property but is not yet ready to take the stockmarket dive – you can cover all bases. Multi Asset funds split themselves into cash, bonds,

stocks and property, giving a balanced portfolio that covers all possibilities. Limiting to around a third in shares, the Blackrock Consensus 35 (2) and Vanguard Lifestrategy 40% Equity (2), do exactly that and still turned in a respectable 13%-16% overall in the last 3 years.

For the more adventurous investor who is in it for the long-term, we are strong supporters of Terry Smith’s Fundsmith Equity Fund (7). The nearly £6bn fund invests in only around 30 hand-picked companies, with a return of 27% a year the 5-year average.

Diversification is key in any portfolio and looking at other countries must form part of that. The US market rose almost as much as the UK fell in 2015 and many see the US as a good investment for part of their portfolio. Currency risk adds to the overall risk, hence the higher Risk Rating but HSBC American Index (9) is a good tracker of the US Market and exposure to the future with Google, Microsoft, Facebook and Amazon amongst its top 10 holdings. 3 Year return is 48%.

Finally, going a little off-piste, we see good potential in Japan. Not just Japan in general but Hideo Shiozumi in particular.

For those who don’t know him, you may wish to look up the 20-year-long record of the outstanding Legg Mason IF Japan Equity Fund (9). It’s difficult to write anything negative on a fund that has returned 119% over 3 years – just bear in mind the risk rating!

HBFS can guide you with proper advice, risk assessments and continuous portfolio monitoring to blend all these elements together to give a long-lasting well constructed investment, whether it’s for your ISA, Pension or Offshore Wrapper or Trust.

This article is intended for information only and does not constitute Financial Advice. Performance figures are attributed to Trustnet and no reliance on past performance should be used as an indication for future performance.

* The Risk Rating used in this article follows a scale of 1 to 10 with 1 being the lowest risk and 10 the highest, based on a 12 month rolling volatility calculated for Old Mutual Wealth by Financial Express.

Investing is not all about Property.

For more information please contact Freddy David or Saul Zneimer on 020 8953 3444 or email us at [email protected]

HBFS is the trading name of HBFS Financial Services Ltd., which is authorised and regulated by the Financial Conduct Authority. FCA number; 463752. Registered address: 52 High Street, Pinner, Middlesex HA5 5PW. Registered in England, Reg. no. 5273179. Trading address: 3 Theobald Court, Theobald Street, Borehamwood, Hertfordshire WD6 4RN. © 2015 HBFS Financial Services Limited. All rights reserved.

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