Webinar Wrapper choices, changing rules and what they mean for clients

(00:03) Hello. Welcome to the Paraplanners' Assembly. My name is Richard Allum. It's good to have you joining us this afternoon. I'd like to start by thanking our supporters. That's Aegon, Barnett Waddingham, M&G Quilter, Scottish Widows, Transact and Wealthtime. Without their help and support, we just couldn't do these kind of things.

(00:21) A couple of parish notices as well. Ian's popped some links in the chat for some upcoming events. We've got on the 30th of April we've got our next informal assembly for outsourced paraplanners and administrators. So whether you're currently in the outsourced world or you're thinking about joining us over here, uh, that's a private session that you can join in and we'll have a chat about all things freelancing and outsourcing, or we'll just have a chat. You know, sometimes when you're working and it's nice to meet other people. So that's 30th April. And then on the 6th of May, we've got our session on SEND and financial planning. So working with clients that have family members with special educational needs or disabilities, we've done the preparation for this. It's really interesting, all the issues around that one. So if that's something that you are working with at the moment, or you should just know about it anyway, in case you come across a client with those particular requirements, then that's on the 6th of May, and you can go on to our website and sign up for those right now.

(01:28) If you haven't done so already, you can follow us here on Crowdcast. There should be a button at the top of the screen. That way we can let you know when we go live and all sorts of other stuff. And also, if you haven't signed up for our newsletter yet, then you're missing out. There's four thousand eight hundred people on there now, go on our website and you can sign up for that and we'll pop a link in the chat as well to sign up for the newsletter as we go today.

(02:01) You can pop questions in the chat, also on the right hand side of the screen, there's a little question mark in a bubble. You can click that and put your question inside there. People can then comment on it and vote it up and down. And I'll bring up the questions as we go throughout this session and fire those at Elaine and we'll see how it gets on.

(02:26) So just to test the chat is working, have things slowed down for you now that tax year end is gone? For us it's got busier which I'm quite surprised about. Um, but, uh, be good to know. Uh, no. Hasn't slowed down for Daniel. Definitely. 'Exclamation mark' as well. So yeah, the chat does seem to be working. Yeah, we've got a bit busier, uh, to say the least. This is being recorded so you can come back and watch it again in the future. If you're watching in the future, then hello from the past. I think all that way around. And of course you can get the podcast version if you want to listen to us on your podcast app of choice tomorrow. Right. Everybody seems to be busy pretty much. It never stops. Ban money. Yeah. Okay. I'm with that one. End of capitalism. We don't want that anymore.

(03:19) Right. On to today. So the tax landscape has shifted significantly over the past couple of years. Well, in fact it always does that, doesn't it? We've had allowance restrictions. We've got age discrimination for cash ISAs. Now we've got rising dividend tax rates, the extension of IHT to pension funds. And there's loads for us paraplanners to get to grips with and lots of opportunity to add value for our clients. So this assembly is designed to cut through the complexity. And we're going to give you a clearer picture of how different tax wrappers work in practice. So you can make more confident decisions about which solution is right for your clients.

(03:58) We're going to look at how the recent tax changes are prompting us to revisit wrapper choices that's already in place. Walk through the kind of comparative analysis you've got to do to work out when maybe a GIA is better, or a bond is better, when onshore is better or offshore is better. All those kind of things. And talking about onshore bonds, we're going to look at how they are actually taxed including a common misconception that a lot of people still fall into. And then which wrapper tends to suit which client circumstances. Uh, and if we've got time, we'll squeeze in something about how trust solutions fit into the picture, particularly in the context about IHT on pensions. So a lot to squeeze in there today, and I'm really pleased to be joined by someone that knows all of this stuff inside out. So Elaine, if people don't know you already, could you introduce yourself?

(04:53) No pressure Richard. Just given the introduction there. And for those that don't know me, I'm Elaine Cruickshank. I'm tax and trust manager within the sales technical team at Aegon. I've been with Aegon for about 23 years now, so I've been in the industry for a while. And as Richard said today, we're going to take a closer look at recent tax changes and how these continue to materially affect planning and which wrappers to recommend to clients. But I'm of a view that with change comes opportunity. I'm always very positive. And as we'll see throughout this session, and clients are going to need help to navigate the impact of the recent changes. And obviously, will be requiring your help and assistance.

(05:39) Thank you. I'm really glad to have you actually back because you've been on this before, but not for a long time.

(05:48) That's right.

(05:49) And Elaine has put some slides together for us because there's quite a few technical concepts here. So I'm going to pop those up on the screen now, but we'll make a copy of these available via our website so that you can refer back to them if you want to. And before you get going, actually, one thing I should have said, there will be one hour's worth of CPD available for this assembly, but we're going to send you out an email link in the next day or two, so you can click through to that and get your CPD. So sorry, Elaine, over to you.

(06:27) And that's okay. So I'm obviously there is barely a day that goes past without looking at the trade press and seeing the IHT receipts are increasing and that more people are going to be caught by tax as well due to the freezing of tax allowances. And I think that with all of the recent tax changes, I think what is clear is that more people are going to be subject to tax on more assets.

(06:55) So these are the learning objectives for today's session. And as I say, we're going to focus on the recent tax changes and the impact on the various tax wrappers and always throughout the session, be mindful of the fact that Consumer Duty as well has to be taken into consideration here. Looking at target markets for different types of wrappers, and also about the suitability of the different types of wrappers and trying to avoid foreseeable harm for clients as well.

(07:26) So just to do a recap of the income tax and capital gains tax announcements that were made in the autumn budget 2025. Firstly, there was an announcement that the personal allowance and UK income tax thresholds are going to be frozen for a further year until April 2031. And according to an OBR report published in November 2025 — that was published in the Professional Paraplanner in November 2025 — this measure of freezing the thresholds is going to lead to 780,000 more basic rate taxpayers, 920,000 more higher rate taxpayers and 4,000 more additional rate income tax payers by the time we reach 2029–30. So it might just have seemed like an innocent announcement that was made, but actually it's going to have a huge impact on clients.

(08:13) And we saw that the dividend income tax rate is going to increase by two percent from April 2026 for basic and higher rate taxpayers. The savings rate of income tax is going to rise by two percent from April 2027. And that's across all of the bands. And there weren't any changes announced to capital gains tax.

(08:35) So as far as planning opportunities are concerned, obviously, given these rises in the income tax rates applying to dividend income and the savings rate of income tax, it would be important to revisit wrapper choices that clients have made in the past to assess the impact of these changes, and the continued suitability of the wrapper that they're invested in and for new customers, these tax increases will obviously have an impact on the wrapper that they choose. It's good tax planning to make use of both spouses allowances and exemptions, so that always has to be remembered. And pensions and ISAs again will be preferable as the first port of call for customers, given the fact that dividends and savings income will, by and large, still be tax exempt within those wrappers.

(09:24) So what does this mean in practice? And as I said previously, and pensions, I think will still be a number one choice for clients to look to invest in just purely based on the fact that personal pension contributions generally qualify for tax relief. And there's virtual gross roll up within the pension. And then the client can take tax free cash. So pensions tend to have the most tax advantages. And then with the next tranche of money, I think that clients will probably want to look at funding flexible ISAs. Or if the client needs access to their money, then they might want to fund a pension and an ISA at the same time. Now obviously at the moment there's no tax relief on contributions. You've got virtual gross roll up within an ISA and you've got tax free withdrawals from an ISA.

(10:17) Now, what we had hoped to see in the budget that took place in November 2025, we had hoped to see some simplification measures come through in relation to ISAs. But actually what happened was that there was further complexity introduced, because there are going to be some changes introduced with effect from the 6th of April 2027. So those changes that were announced mean that for those that are aged sixty five and over, they'll still be able to use their full twenty thousand ISA allowance to fund cash ISAs or to put as much as they want into cash ISAs. But for those that are under sixty five, the cash ISA limit is going to reduce to twelve thousand and any excess has to be invested in stocks and shares.

(11:05) And not only that, a few days later there was a tax free savings newsletter published by HMRC. And in that tax free savings newsletter, it was actually stated that the intention is that no transfers between stocks and shares ISAs and cash ISAs for under sixty fives will be allowed after the 6th April 2027. And they are going to look to actually impose a tax charge on any interest paid on cash in stocks and shares ISAs. Now, we don't know currently whether that tax will be applied by way of a deduction of basic rate tax, in the same way as it was in 2014, or whether customers will have to actually return the interest figure on their personal tax return and pay the appropriate rate of marginal rate of income tax. And then finally, there are also going to be some tests on investments in stocks and shares ISAs to see if they're cash-like. So actually, what that means in practice is that we're actually going to have to wait for the final regulations to come out so that we can see how the ISA rules are going to apply in the future in relation to these changes for under sixty fives. So that's just something to bear in mind. Just now in any advice that you're given that you're giving in that there is going to be change in the future in relation to ISAs.

(12:33) I did make a bit of a quip at the start about this as age discrimination for ISAs now, and I did see quite a few articles around this saying that this might fall over because of that. Have you seen anything more on that?

(12:49) I've not seen anything more on that, but I agree, and especially given the uncertainty in the markets at the moment as well, it does seem unfair that, you know, for younger investors that maybe want to seek a safe haven in the future through turbulent times, they're going to have to either stay invested in stocks and shares and ride through the turmoil, or they're going to have to consider the fact that if they invest in safer investments, then they could actually suffer tax, you know, as a as a consequence. So it does seem a little bit unfair from an age discrimination perspective. You're quite right. And I think that we'll have to see the final legislation before we can see exactly what is going to be introduced by way of this, I know that there has been some workshops ongoing between the industry and HMRC to try and work out what these regulations will actually mean in practice, but we're not quite there yet. So I've not you know, there's not been any draft regulations published yet. So it's just another element of uncertainty, you know, in amongst all of the other uncertain areas. Then it's so after the clients have funded their pension and their ISA, it's at this next juncture, what do they fund next? And I think that, you know, good tax planning would determine that a client should actually make use of the tax allowances and exemptions. So arguably they might want to still invest in a general investment account to make use of their personal savings allowance and the dividend tax free allowance and the CGT annual exemption, albeit that actually if they want to make use of those allowances, the threshold for investing into a GIA may well now be slightly smaller than it was in the past. And then obviously we have that argument of offshore or onshore bonds for any surplus after the client has made use of their income tax thresholds and the CGT annual exemption.

(14:51) Obviously, there are other planning opportunities available that clients may well want to consider. In addition to this sort of bucket approach, as in where to best invest the client's money. Some clients will probably want to focus on IHT planning and intergenerational wealth transfers in the future, so that might be a driver around wrapper choice as well with the consideration that, you know, whilst they're investing now, the intention might be to do some trust planning in the future or to make a gift in, you know, potentially exempt transfer to the next generation. Some clients obviously might want to fund junior products such as junior SIPPs and junior ISAs. And obviously investing in VCT or EIS could be another option if clients are looking to get specific tax reliefs through their investments. Again, we know that obviously, the income tax relief with VCT investments is reducing from the 6th of April 2026. So it's going down from thirty percent to twenty percent. And I've just obviously covered the ISA element in that slide. So the slide is obviously here just covering off what I mentioned about the changes to ISAs that are going to be forthcoming.

(16:04) When you're looking at how to draft suitability reports and how to advise clients around wrapper choices, I think that more than ever before. Good fact finding is going to be important because actually the wrapper choice that will be relevant for the client will depend on the client's circumstances and and they're looking to achieve through their choice of the wrapper. I think that one of the most important things to focus on is the rate of the rate of tax that the client suffers now, are they an additional or higher rate taxpayer and might they be a basic rate taxpayer in retirement, for example? Is the client happy to go through the administrative hassle of having to report their dividend income, interest distributions and realised gains on the tax return every year? Or would they like simplicity, in which case then, you know, a bond might be the answer. As I mentioned before, exit strategy is going to be important. You know, what does the client want to do with this wrapper or with these investments ultimately? Are they going to be taking withdrawals throughout their retirement to fund their retirement to top up their pension? Or are they potentially going to be looking at IHT planning? Are they going to be moving overseas? So there's lots of considerations to make. And I think that the wrapper choice that is relevant to a client really depends on the client's circumstances. And the client's circumstances really has to be taken into consideration.

(17:36) So that's a really important point there because Justin's popped a comment in the chat saying, the closer you are to retirement, the less attractive pensions are over ISAs. Discuss with the smiley face emoji. And I think that that I mean, it depends is the answer to that one, isn't it?

(17:54) It always depends on the client's circumstances. But the danger is that you just slip into a kind of a default mode that at this time they get that. And at that time they get this. It's always down to considering the client's circumstances as to what's suitable.

(18:12) And keeping it under review as well, and just making sure that whatever the whatever wrapper they are invested in, that it's still suitable as well given the client's changing circumstances over the years.

(18:25) Yeah, definitely.

(18:26) And just to sum up, obviously we are seeing an increased use of investment bonds now. Obviously there's a number of drivers for that. The two percent increase in dividend income tax rates and for the ordinary and upper rate of dividend tax, the dividend tax free allowance being reduced from £2,000 to £500, the CGT annual exemption decreasing dramatically from £12,300 to the current level of £3,000 and CGT rates increasing and the income tax thresholds being frozen and the extension of IHT to unused pensions. And from next April. Is that what your experience is actually out there in the marketplace. Are you actually using more investment bonds now than you were previously?

(19:08) Interested to see that in the chat.

(19:11) Yeah, because we we certainly have seen an increase, particularly in onshore bonds. In offshore bonds have always kind of been they're quite popular, but onshore bonds use has just gone up quite a bit, particularly when people kind of get to grips with how they are taxed.

(19:29) Especially if you've got a high, high dividend paying, uh, fund you're investing in the onshore bond is now a good place to go. It's just like a big ISA but yeah, if you're seeing an increase in bond usage, pop it in the chat. Be good to know.

(19:47) It'd be good to know. That's right. It's always good to get feedback about what's happening out there in the marketplace.

(19:55) And so what clients might want to use an investment bond. I talked earlier about GIA investments and being useful for clients that haven't used their tax allowances and exemptions, but obviously for clients that have, then an investment bond could be the next logical investment for them. There may well be clients out there that don't want to be constrained by the CGT annual exemption. They might want to do switches without incurring a personal liability to capital gains tax. There could be clients that actually are higher rate or additional rate taxpayers now, but will be basic or non-taxpayers in retirement. And some clients may well want to control the tax points. So they might not want to have that annual tax liability on the dividends and the interest distributions. And instead they might want to control the tax until there is a chargeable event gain. And when there is a chargeable event gain, they might well try and actually manage their income in that tax year when there's going to be a chargeable event gain perhaps by not taking flexible, flexible drawdown in that year, you know, not taking an income payment, they might be able to to manage their income levels and manage the tax exposure. So investment bonds allow them to do that because unless there's a chargeable event gain, there's no personal tax liability.

(21:18) So turning now to the slide that Richard alluded to earlier on, looking at the internal tax treatment of collectives or GIA in onshore and offshore bonds. With onshore bonds, there's no tax payable on dividends. And there's twenty percent tax payable on other income or rental income or interest and twenty percent on capital gains, and that twenty percent on other income and on capital gains. The actual corporation tax rate that applies to the underlying income and gains for the onshore life company is going to rise to twenty two percent from the 6th April 2027 to mirror the increase in savings rate, that's going to start applying for individuals. So what you can see here, and what I'm going to highlight is that obviously within an onshore bond there's no tax payable on dividends. However, individual policyholders receive a twenty percent notional tax credit, which is rising to twenty two percent from April 2027. So essentially, you've got dividends not being taxed within the wrapper and the policyholder receiving a tax credit in relation to that dividend that hasn't been taxed within the onshore bond wrapper. So that's really driving an increase in use in onshore bonds. And we'll come on with an illustrative example to show how that works in practice.

(22:37) Obviously with an offshore bond you've got gross virtual gross roll up within the offshore bond wrapper. There might be some irrecoverable withholding tax on overseas dividends. But apart from that you've got virtual gross roll up within the offshore bond. And with collectives and within the fund, you've got the fact that there's no tax payable on dividends, no capital gains tax and the other income is subject to tax at twenty percent.

(23:04) So why consider an investment bond. Obviously there are a number of different reasons for considering investment bonds. I'm just going to focus here on three in the interests of time, because I could be here for quite a while going through this slide otherwise. But one of one of the main advantages with an investment bond is the fact that there is tax deferral, as I said earlier. So there's no personal liability to income tax for the bondholder until such time as there's a chargeable event gain. Now there would be a chargeable event gain on surrender of a segment or when the bond is fully encashed when the last life assured dies. If the bondholder takes a withdrawal in excess of their cumulative five percent tax deferred allowance, for example, or if there's an assignment for money or money's worth. So by and large, as I mentioned earlier, because of the fact that there is no personal liability until there's a chargeable event gain the bondholder can control, by and large, when that chargeable event gain arises. There's also flexibility in the way that withdrawals can be taken from an investment bond. The bondholder has the availability of five percent of the capital invested in each year that they can withdraw on a tax deferred basis, and if they don't use that five percent in one year, it can get carried forward to the next year and so on until such time as they come to use it. And so, for example, they could take five percent for twenty years. And or if they don't use it in any year, as I say, they can carry it forward for use against and future withdrawals. Now, bonds are great because they've got flexibility in the way that withdrawals are taken, because they could take the withdrawal across the policy using their five percent tax deferred allowance, but anything over their available five percent tax deferred allowance is actually a chargeable event gain. And that gain arises at the end of the policy year. So it will fall in the tax year in which the anniversary of the investment into the bond took place. The other alternative is that the bond holder can cash in segments if they want to make withdrawals. And by cashing in segments, they're realising the economic gain that sits within those segments. So you've got flexibility in the way that withdrawals can be taken. But there is obviously a downside in that, in that you'd have to go through both calculations to see what would be the most tax efficient way for withdrawals to be taken.

(25:43) And it's worth bearing in mind that there was a tax case and a Dutch a Dutch client. Mr Löffler, and he invested £1.4 million in offshore bonds, and he made withdrawals in the early years of making the investment into the offshore bonds to repay a loan that he had taken, and also to purchase a residential property. And instead of cashing in segments, he took the withdrawal across the policy. And unfortunately, because it was the early years of the policy, there wasn't much five percent tax deferred allowance available. And as a result, he incurred an effective tax rate of seven hundred and seventy nine percent. So that just goes to show that actually it's important to go through both methods. If a client is looking to take a withdrawal to try and mitigate such horrendous tax implications for the client, and it's good to work alongside the bond provider if you're looking at taking withdrawals as well. Most bond providers have chargeable event calculators available to help with these calculations.

(26:47) Wasn't there a revenue? I don't know if it was a ruling or a change. After that case. It said that if you if you have inadvertently done that, you can go back and unwind it and do it on the segment surrender basis.

(27:03) So there were no there always was a get out of jail free card in that if the if the if the client had taken a large withdrawal across the policy and actually they made a full surrender of the bond in the same tax year that, that gain on the withdrawal across the policy would crystallise then actually that gain would be swept aside as though it never actually occurred. And um, and it would actually be the economic gain on final surrender that would arise to the client. So that was always one option there was to encash if it was in the same tax year. But the other other option, you're right. HMRC did rule that they would look at disproportionate gains, but they actually didn't want to see too many clients going down that route of claiming that it was a disproportionate gain. They viewed it that it should be by exception rather than the rule that they revisited these types of situations.

(28:03) And if a client has suffered a disproportionate gain, I mean, obviously it will depend, you know, what might be a disproportionate gain for one client may well not be a disproportionate gain for another client, you know, based on the level of assets they have, you know, what income they have, etc.. So it is a case of actually providing as much paperwork as possible to substantiate any claim to HMRC for HMRC to look at, but they you know, it's whether they will actually look at it, you know, favourably or not is. And it will be determined by HMRC effectively. But they were looking at it as being an exception to the rule.

(28:46) And I remember at the time that I was on the ABI Investment Product Tax Working Group and providers then revisited their withdrawal forms to actually make it clearer what the implications would be in taking a withdrawal using both, you know, using either method and actually encouraging providers to have worked examples at the back of the withdrawal form to try and help customers to not make an ill informed choice in the way that they took withdrawals.

(29:15) I think the key is get it right first time. And if you want to learn more about investment bond gain calculations, go on to our website in the resources area and type investment bond in the search box. And we've got loads of good content on there. So quick plug. Sorry.

(29:34) No that's fine. It's always good to have a good to have a plug to the website there.

(29:41) And the final the final element that I was just going to focus on quickly is time apportionment relief. Time apportionment relief really is an invaluable relief for someone who has a bond and they go overseas for a while and then they come back to the UK and once they're back in the UK, they suffer a chargeable event gain. So for example, they cash in their bond. And what happens is that when that chargeable event gain arises on cashing in their bond, they'll get proportionate relief for the time that they were out of the UK resident overseas. And obviously when they were overseas, they'll suffer tax in the jurisdiction that they're living in. So they'll suffer tax in Spain if they're resident in Spain. But if they then come back to the UK and suffer subsequent chargeable event gains. Then for that time that they were resident in Spain, then they'll get proportionate relief against their UK tax liability.

(30:41) Quick question for you Elaine. That's come in. I think I know the answer to this one. If someone invests one hundred thousand pounds into a bond and there's an initial adviser charge of one thousand pounds, is the five percent allowance based on one hundred thousand pounds or ninety nine thousand?

(30:59) And it depends on whether you know how the investment is made. So if one hundred thousand is invested into the bond and the adviser charge, the initial adviser charge is made from the bond, then if effectively the the five percent, sorry, if I just take a take a step back. So it depends on how the client chooses to actually pay for the adviser charge. So is the client paying it by cheque separately. You know, they pay the one thousand pounds adviser charge by cheque separately and one hundred thousand goes into the bond or the life company may well pay the one hundred thousand and invest the ninety nine thousand into the bond. So it depends on how that adviser charge is being facilitated. I think some bond providers do have both options.

(31:49) That's right. And I've tried to predict I forgot the names they give it now. But you can actually say well the one hundred thousand pounds take the thousand pounds out and the ninety nine thousand goes in, or the one hundred thousand pounds goes in and the bond is set up. And then when it comes out, I think I might be wrong on that latter option, though that thousand pounds initial fee is a withdrawal with withdrawal allowance. So that's five percent based on the one hundred thousand. But you've used a thousand pounds of that.

(32:24) That's correct, that's correct. And and you're quite correct there, Richard, in the way you've summed it up.

(32:31) Yeah. So if I turn now to some worked examples and just to show some considerations that you'd have to make, and if we've got a couple of clients here investing for growth, and they each want to invest fifty thousand in accumulation units with the objective of maximising capital growth to allow them to pay off their remaining mortgage on retirement. Both use their allowances and exemptions elsewhere, just for ease of illustration. What would be the total potential net proceeds after ten years? So all things being equal and assuming a five percent yield with three percent capital growth, one percent dividend yield and one percent interest. I've done some spreadsheets to work through the maths. It wasn't an easy task as you can probably imagine. You know, based on the assumptions I had to build in. But actually, all things being equal, holding the collectives works out as the most tax efficient investment. And given the assumptions that I've made in this case study.

(33:32) And the reason for that is that capital gains tax rates are still lower than income tax rates. So you've got an eighteen percent basic rate of CGT versus twenty percent income tax rate, which is obviously rising to twenty two percent from April 2027. For higher rate taxpayers, you've got a twenty four percent rate of CGT versus forty percent, rising to forty two percent in income tax. So just on paper, investing directly into accumulation units held within a GIA gives the best after tax position.

(34:05) However, that isn't the full story because obviously you'd have to consider the fact that in that case study that I've built assumes that there's no change in the underlying investments over the ten years, which is unrealistic, I would say. And so there are obviously other considerations to take on board because you'd have to consider, is the client an active investor? Could they actually keep their gains realised every year within the three thousand annual exemption? Now, if we look at it that, for example, one hundred thousand with a three percent growth, and that would give you three thousand pounds of gain each year, and five percent in capital yield on sixty thousand would be three thousand each year. So I think it becomes harder. The larger amounts that are held in a GIA to be realistic about keeping clients within their three thousand annual CGT exemption. Obviously, it's a lot more work for financial advisers to manage the CGT exposure now and for clients as well. Obviously, there is that consideration of more professional fees as well in relation to the tax planning.

(35:12) What I have seen is a shift in. With investors looking to use more multi-asset or multi-manager funds where the CGT exposure is actually managed within the funds. So the portfolio can be managed within the fund without giving a personal CGT liability to the investor when assets within the fund are changed. And for active investors with larger sums to invest, obviously within an investment bond, there's no personal liability to capital gains tax when the underlying investments are changed.

(35:43) And again, I've done a case study of investing for income. So higher rate and a basic rate taxpayer early sixties each have fifty thousand tax free cash to invest to generate an income of two thousand for ten years. Again we'll look to see what would be the most tax efficient type of wrapper for customers in that situation. And you can see here that actually onshore bonds come out to be the most tax favoured. So give the highest after tax net proceeds. And so again in this case study what I've assumed is a one percent capital growth four percent income yield with three percent dividend yield and one percent being interest yield. Now it's a no brainer why onshore bonds come out in best in this example. And that's because obviously we've got fairly high dividend yields. And as we saw earlier there's no tax on dividends within an onshore bond wrapper. And the client gets a notional tax credit to offset against the basic rate of tax. So that's why they obviously come out on top from a net returns perspective. And obviously, there are providers out there in the marketplace that have net returns calculators. So I think it is useful to put the figures through these net return calculators and see for yourselves what would come out best from a net return perspective given different client circumstances.

(37:08) And then finally, if we have a situation where we've got a client now who is a higher rate taxpayer, looking to make an investment, and actually the intention is for inheritance tax planning further down the line. Or actually they want to gift the bond or segments of the bond to an adult child when they go to university and there'll be a non taxpayer or if they want to actually gift the investment to the spouse further down the line. So to equalise their estates, then arguably, if there's a chance that the ultimate recipient may be a non-taxpayer, then an offshore bond may come out better, especially in situations where the individual concerned is going to be taking withdrawals within the five percent tax deferred allowance. So they're not incurring an ongoing chargeable event gain year on year. But actually they're managing their tax exposure. They're taking withdrawals within the five percent tax deferred allowance. But further down the line, they think they won't need access to that investment anymore and would like to do some gifting of that investment.

(38:14) As you can see here. I've got a situation just to highlight this, we've got a higher rate taxpayer who invested one hundred and fifty thousand into the bond. They've been taking withdrawals within the five percent tax deferred allowance of twelve thousand nine hundred and twenty. And so no ongoing chargeable event gains. Then looking now to surrender the bond. And if the the bond is worth one hundred and fifty five thousand six hundred and fifty. If they were to assign the bond to their non-taxpaying spouse. So if they were to make a gift of those assets to the non-taxpaying spouse because they're trying to equalize the assets that both spouses have, then essentially when the non-taxpaying spouse comes to cash in that bond, then you'd have use of the non-taxpaying spouse's personal allowance, zero percent savings rate, and the personal savings allowance, meaning that a chargeable event gain of eighteen thousand five hundred and seventy could be incurred with no income tax liability.

(39:15) Obviously, if the bond had been onshore, then there would have been taxed within the onshore bond wrapper and there would have been a notional twenty percent tax credit. But obviously a non-taxpayer can't benefit from that notional tax credit. It's non-recoverable. So you'd be having tax within the fund. And no actual availability to offset that tax liability. So it's worth bearing in mind that potentially, if in the future the ultimate beneficiary is going to be a non-taxpayer, then offshore might be the answer. So I'm just trying with all of these examples, I'm just trying to highlight that there is it is all dependent on the client's individual circumstances and what they're looking to achieve.

(39:58) You mentioned in that example about assigning to an eighteen year old. So child that that's going to university, which is fine because of course a bond is an insurance contract or a capital redemption contract, which can't be held by a minor. But we have quite a few people contact us beforehand saying about, is it possible to assign a bond to a child as a non-taxpayer? Technically no, but you could assign it to a bare trust in the name. And it's the same net tax result, but it gets around the fact they're under eighteen.

(40:32) It does. Or if the bond is held in a discretionary trust, then the trustees could appoint that the portion of the trust fund is held on bare trust then for that minor. And it achieves the same thing.

(40:47) You're right. Yeah. Dave's popped a comment in the chat about the Ramsay principle for bond assignments and cash and reinvestment. I'm going to save that one to the end. Dave. All right. If we've got time we'll bring it up then. But is it is it essentially. And just to cover that off any. And so in order for an assignment between spouses to be truly effective from a tax perspective, then any new investment has to be made by the recipient spouse. So the assignee and because arguably, if the funds were to make their way back to the original bondholder, then it's hard to argue that actually the end the end goal of or the end objective of making that assignment was for the tax mitigation. So and or tax avoidance essentially.

(41:34) So in order for assignments to truly work, obviously it's important for the deed of assignment to be drafted, submitted to the life company. And then obviously the life company updates their records. The so then if the recipient spouse cashes in the bond, the chargeable event gain is assessed on them to tax. But then any new investment should be made in the receiving spouse's name in order for it to be effective from a tax perspective. So it truly is a gift. And that was why I was highlighting the fact that, you know, it's where spouses are looking to equalise their estates or assets are truly shifting for the right reason, you know, and the investments being made for the right, you know, the investment the investment assignment is being made for the right reasons.

(42:24) Thank you. If I turn now to investor protection and because this is another consideration. And this is obviously not tax driven, but investor protection doesn't cover poor performance or market losses. Investor protection is there to cover customers where the financial provider goes bust and can't pay back in their liability to the bondholder, for example.

(42:44) So with onshore bonds, obviously we've got the UK Financial Services Compensation Scheme and it covers one hundred percent of the life company's liability to the bondholder as far as offshore bonds are concerned. Then there is a form of investor protection in the Isle of Man, and that covers ninety percent of offshore bond providers liability to the bondholder. And in Dublin since Brexit. Unfortunately, there's no formal insurance policyholder compensation scheme anymore. But in all of this, what you would hope is that there should never actually be recourse to the Financial Services Compensation Scheme, because bond providers keep the assets segregated away from their shareholder funds, so away from the company's assets. So actually, investor protection is really a line of last resort because actually the bondholders assets should be kept separate and ring fenced, you know, for that bond holder ultimately.

(43:38) And as far as a GIA is concerned, sorry, just to finish off with the GIA and the cash element is up to one hundred and twenty thousand. And that has changed since December 2025. So it's one hundred and twenty thousand per person per firm. And the investment limit is eighty five thousand if the platform provider fails. So again, as I say, investor protection isn't for bad investment performance. It is really where the underlying provider should go bust and the assets aren't recoverable.

(44:09) And so just some very general guidelines in offshore versus onshore. Obviously, we've talked before about using an investment bond, whether it be onshore or offshore allows control of the tax point as there's only a personal tax liability on a chargeable event gain. Bond holders can make use of the five percent tax deferred allowance to make withdrawals, switches and can be made within the bond wrapper without a personal liability to capital gains tax. So investment bonds, whether they're offshore or onshore, are valid wrappers for basic, higher and additional rate taxpayers who want control over the tax point and want to lessen the burdens of tax compliance.

(44:50) This slide shows some very general rules of thumb in that I know that time apportionment relief is available for both onshore bond holders and offshore bond holders. But if a client is looking to go overseas in the future, then an offshore bond may be the better choice of wrapper based on the fact that while they are overseas, they're not actually going to get any relief for the underlying tax within the onshore bond wrapper. And whereas within the offshore bond, there's no tax within the wrapper. So offshore bond could be better if a client is looking to move overseas. Offshore bond for higher net worth clients, those clients that want wider investment choice. Because with an offshore bond, there tends to be more choice of the underlying investments and that can be held within the bond. But obviously care has to be taken that in choosing from a wider investment choice, that the highly personalised bond rules are invoked by making a bit of a rogue investment choice within the investment bond wrapper. And obviously with an offshore bond, it allows non taxpayers to make use of their allowances and their full tax allowances and offshore bonds useful for discretionary or flexible trusts where the tax position of the beneficiaries isn't clear. So just some general rules of thumb there.

(46:11) And I think that there has obviously been a shift as well for in the platform industry for general investment accounts being held within offshore bond wrappers. It's been a theme over recent years and basically holding a general investment account within an offshore bond wrapper means that the same investments can be held within a client's pension ISA and offshore bond. So all held on the platform. So it gives access to the underlying underlying centralised investment proposition, and it gives wide access to discretionary fund managers and using a GIA within the offshore bond wrapper. And obviously, it gives access to online trading. And because the adviser can act as agent and actually submit trades on the platform and on behalf of the offshore bond provider.

(46:58) And actually, there is another factor to consider with onshore bonds. Obviously, we are seeing a wider choice of investments now with onshore bond providers, but we don't see so many third party arrangements with other platforms. GIAs being able to be held within an onshore bond wrapper, and that could actually make it more difficult to change the underlying investments within the onshore bond wrapper. So say for example, the adviser was actually quite keen on using another provider's GIA because a lot of the client's assets are held on a specific platform. Well, invariably the only way to do that would be to cash in the bond and make a new investment. So actually using a GIA within an offshore bond gives the flexibility of being able to move between platforms on an easier fashion.

(47:48) Is there a technical or a regulatory reason why onshore bonds don't have the same.

(47:54) So the reason, what you have to consider with an onshore bond is that there's tax within the fund and there are obviously, as far as calculating that underlying tax assumption is concerned, if it's an insured fund, then actually the tax assumptions are based are like baked into the price of that insured fund. But if its open architecture, then actually there are tax assumptions that have to be baked in. So tax charges tend to get taken from the underlying investments within the wrapper. So it tends to be the case that the onshore bond provider would actually control the investments and the investment reporting within the onshore bond, so that they have the view access to those underlying investments, so that they can then make the appropriate tax provisions and take the appropriate tax charge from the wrapper on an on going basis. It allows them slightly more control over what they're viewing.

(48:51) Brilliant. And a couple more questions around bonds if we can. Why do bond providers only produce illustrations that cover ten years and not twenty years? Sorry. Calculators that cover ten years and not twenty years.

(49:04) It's a good question that we don't have a calculator. And the calculators are just based on spreadsheets. And I wonder if they're just basing them on ten years, just from a point of view of looking at it as a long term investment. So taking ten years as being a cut off, they want to go longer than five years. But, you know, don't want to go too long and to give because some clients may well want to change the investment bond that they're invested in, you know, within that five to ten year period. I don't know why the baked in assumptions are ten years to be fair, because obviously, as far as growth is concerned, the longer the bond is held for, actually arguably the longer gross roll up has to come into play. And the more the tax advantages of gross roll up can actually help a client to achieve a greater return.

(50:01) Personally, I think you've got to make assumptions about all these things. And that's right. You can kind of lean assumptions to come up with an answer you want. Again, if you've got gross roll up the longer term, you've got the better it's going to look. And I think ten years is just, you know, people are going to be investing money. It's going to be for the medium to long term. So ten years seems a reasonable time period, I think.

(50:31) Yeah. And I mean, ultimately what I did with the examples that I've shown on this, on the slides is I just built my own spreadsheet. And actually, you know, I could have continued that for fifteen, twenty years. You know, I just based at ten because actually my eyes were starting to hurt by that stage, you know, looking at spreadsheets and the assumptions that have to get baked in, you know, changing tax rates and the growth assumptions. And so I think it's probably just from an ease of building the tool because it does it does actually take quite a lot of building to get the spreadsheets to work. And I can imagine that that was probably a factor.

(51:16) Yeah, I think so. A couple more if I can, can anyone be a life assured on a bond and does it that have to be an insurable interest?

(51:26) So strictly speaking, there should be an insurable interest and based on the fact that for it to be a valid contract, there should be insurable interest because there shouldn't be an element of bounty in relation to that life that's being insured. So in other words the bondholder shouldn't stand to gain if that life assured were to die. And so ultimately that tends to be the reason why, you know, it's spouses or if, I mean, market practice has moved on a little bit in that if it's a trust, for example, then the lives assured will invariably be the beneficiaries that are most likely to actually benefit from the trust. So whilst strictly speaking, the insurable interest isn't there, no one's challenging the fact that the lives assured are the beneficiaries. But there should really be an insurable interest there. So the bondholder should stand to incur a loss if that life assured were to die just in the same way as they would do with an insurance contract, you know, protection contract.

(52:31) I've never seen it ever questioned, either when setting up a bond or when a bond is paid out, you know, in the future. And I think market practice has moved on in that, you know, when the bonds are set up, the bonds are set up with the insurable and, you know, the relationship factor is stated on the bond application form. And there is a question invariably of is there insurable interest that gets ticked and the bond then comes into force.

(53:01) Good. We mentioned capital redemption bonds earlier on. Someone's asked what's the difference between one of those and a life insurance bond.

(53:10) Yeah. With life and life and with a life insurance bond. Then on the death of the last life assured, the bond comes to an end and the bond pays out with a capital redemption bond. The capital redemption bond doesn't have any lives assured on it, and it continues in existence. And for ninety nine years, unless, of course, it's been brought to an end before that, through full surrender. So it's not. So the existence of that bond isn't dependent on the continued life of that life. Assured capital redemption bonds tend to be offered offshore and have not not really seen any onshore.

(53:49) No, I haven't seen one at all onshore. I think another difference I think I'm writing this is that if you're looking at care fees, then an insurance bond is a disregarded asset. As long as you haven't tried to game the system, whereas a capital redemption bond isn't.

(54:06) And that's correct. And a bond that has an element of life life assurance. And currently under the CRAG guidance is an accepted asset. So long as the reason that the client was advised to go into that bond wasn't to deprive themselves of assets for the purposes of care home funding.

(54:26) Yeah. Brilliant. I can't believe they have to go into it for valid investment reasons.

(54:32) Yeah.

(54:33) I can't believe the time has gone so quick. And we were about to get on to inheritance tax planning with bonds and trust, but with only three minutes to go, I don't think we're going to do that justice. So Elaine, if it's okay with you, could we ask you to come back and maybe revisit that topic, of course, at a later date?

(54:56) Of course. Good.

(54:58) I really appreciate all the engagement today. It's been great to get so many questions as we've gone through it. So apologies for overrun, but actually that's been testament to the fact that you've raised so many really good questions. So thank you so much as a presenter. It's amazing. Amy has put a brilliant question in the chat, which we wouldn't have time to go through today, but we're going to get her to pop that in the Big Tent. And Elaine did say beforehand, if there's any questions that we don't get time to answer, she'll very kindly come back and answer them for us. So I'll pick up with that one with you. Elaine. After.

(55:39) No problem at all.

(55:41) Yeah. That that flew by. So just a reminder for you, we're going to send out an email in the next day or two. So you can click a link and get your CPD for the hour's session today. You can keep the conversation going over on the Big Tent on our website. And Ian's going to pop a link to that in the chat room as well. Which will not only show Amy's question, but any others we've got around bonds and investments and tax wrappers and all those kind of things. Don't forget, you can book our upcoming events on our website. So we've got our informal outsourced paraplanner and administrator gathering on the 30th of April. And then we've got our special looking at financial planning for clients with SEND requirements, which is on the 6th of May. You can book both of those on our website now, but from us, that's it. The sun is still shining, which is good. Massive. Thank you, Elaine, for sharing your wisdom, and answering all of our questions today. And we look forward to having you back again very soon. And thank you to our supporters at Aegon, Barnett Waddingham, Quilter, Scottish Widows, Transact and Wealthtime. Thank you all for watching and taking part and we'll see you all again very soon. Goodbye from us.