13 September 2024
A new poll* of UK financial advisers conducted by Quilter, the adviser platform, shows that 54% of advisers are considering alternative tax wrappers to the General Investment Account (GIA) in light of the new capital gains and dividend tax environment.
The survey reveals that nearly seven in ten (69%) advisers are adjusting the advice they provide on GIAs in order to maximise tax efficiency. Given significant tax changes appear likely at the upcoming autumn budget this figure may be set to rise.
The impact of ‘fiscal drag’ since the introduction of frozen tax allowances in 2021 means clients are paying more tax than ever before and these allowances are set to remain in place until 2028. In fact, a recent Freedom of Information request submitted by Quilter found that 11.5 million people in the UK are set to be dragged into paying higher or additional rate income tax by 2027/28.
When advisers were asked what adjustments they had implemented in their financial planning recommendations since the reduction in tax allowances (e.g. CGT and dividend allowances) nearly half (47%) said they had reassessed the allocation of funds in unwrapped investment accounts.
The poll also shows that 91% of advisers have recommended single premium bonds (onshore and/or offshore) to their clients, with a wide spectrum in the frequency with which they are used.
The changes to the tax landscape have created financial planning restrictions around the suitability of GIAs for client wealth as their use might create significant tax liabilities with more advisers looking at other financial planning opportunities like onshore bonds.
To help advisers with this planning, the Quilter platform has developed a new tax calculator, launching later this month, which looks at a client’s current income tax rate, and where returns are generated from, i.e. how much investment return is derived from capital growth, interest, and dividends.
The calculator shows the anticipated tax costs for surrendering the existing GIA and reinvesting it into an onshore investment bond. It then compares the ongoing tax treatment of reinvesting the net proceeds into an onshore investment bond to see if this initial ‘tax cost’ can be recouped in the medium term (up to 10 years).
Roddy Munro, head of technical sales at Quilter says:
“GIAs still play an important part of financial planning, as there are still exemptions and reliefs that should be used and that are useful alongside low tax rates on gains– but the change in tax environment is causing advisers to look at other options for their clients such as investment bonds as our data shows.
“However, given many clients might have older, larger GIA investments set up long before the changes to the CGT and dividend allowances it can be difficult to assess the ongoing suitability of an existing GIA from a tax perspective.
“This calculator will prove to be an increasingly important tool for advisers in assessing whether to retain a clients GIA, or move to an onshore investment bond, subject to their other financial planning goals. With the tax environment set for what seems like significant changes at the upcoming budget, it is important advisers can swiftly implement changes to their client’s advice and suitability. This new tool will be able to help them to do just that.
“The tax treatment of onshore Investment Bonds is proving to be a very useful option to help financial planners invest new money for their clients complementing where appropriate holdings in a GIA.”
