Reply to: Inheritance tax

[Bradley]

One track mind

Lets get this thread back on track.Someone was seeking advice on IHT. Discounted Gift Schemes are just one of a range of mitigating tools available. But as i said, no-one is going to mitigate an IHT liability just by using these.

Hi Glash - yes it was these schemes I particularly object to because of the uncertainties and the costs. They aren't the panacea they purport to be.

[glashIFA@Paramount]

Glash - if you've taken offence at what I've said I'm sorry about that.

I have some financial knowledge and did at one time work for an investment house (now sadly defunct) and what I say about the internal workings of such is pretty accurate IMO. As you probably know, things like discounted loan/gift trusts are thought up by or copied by the bod employed by the investment house to think of such things. Once the basic model and wording is set-up and has been looked at by legal, it's pretty much sell as many of these (unalterable) packages as possible i.e. hit the WP button. You'll also know that some of these products need to be sold through IFAs to be tax and legal compliant.

Of course the IFA has a range of duties imposed by the FSA or equivalent which includes filling the getting to know your client questionnaire. This means that you should have done the bulk of the work before you even discuss suitable investment opportunities. I guess that this is the 3 to 4 hours you talk about.

Its then a matter of getting a suitable investment house to provide the plan. You can hire external analysts to come up with a suitable list or you can do what I did and google discounted gift - here's the 1st link I came up with:

http://www.friendsprovident.co.uk/co...oducts/iht_dgp

How long does all that take? Days, hours?

I also note from reading the financial press that more and more IFAs are quoting fees because more and more clients are becoming aware of what is charged and want to know that they are not getting charged unreasonable rates.

I don't expect anyone to work for nothing just for the charge to fit the work done.

No offence taken Bradley, jst trying to clarify one or two things.

Lets get this thread back on track.Someone was seeking advice on IHT. Discounted Gift Schemes are just one of a range of mitigating tools available. But as i said, no-one is going to mitigate an IHT liability just by using these. There is a lot of other planning that goes on that doesn't result in a product being "sold" but this advice still needs paying for. You can't say Discounted Gift Shemes are unalterable - they're all different. The amount of immediate discount depends on health and age so they all have to be individually underwritten. After this it might mean that a DGS is totally impracticle and another route has to be found. Like i said DGSs are just one option and, if I'm honest, not one that i use too often because, as advised in the thread, they are a bit of a gamble, all investment backed vehicles are but if it fits the clients situation then - why not? An immediate 40% tax saving has to be considered. With regard to more and more IFAs offering fees - they're offered all right but a surprising number of clients don't want to pay them - it's seen as an extra cost to some because they physically have to write a cheque instead of commission coming from the product.

The ifa market is shrinking at a rapid rate and clients are perfectly entitled to vote with their feet. I'm happy to charge fees which are reasonable and retain my clients - new ones are expensive to obtain!!

[Bradley]

Times Article Quotes

Even if the Revenue is forced to back down, some advisers are not happy to recommend such schemes because they are expensive to set up. Salesmen often earn as much as 7% upfront and 0.5% each year for selling them, which is well above the average.

Peter Twiddy, a consultant at solicitor Bircham Dyson Bell, said:
“These schemes are a gamble and are suitable only if you are happy to take a punt.”

Nuff said?

[tim123]

I also note from reading the financial press that more and more IFAs are quoting fees because more and more clients are becoming aware of what is charged and want to know that they are not getting charged unreasonable rates.

I don't expect anyone to work for nothing just for the charge to fit the work done.

You also have to put money aside to pay the compensation when HMG change the rules and you have to pay compensation.

http://www.timesonline.co.uk/newspap...568636,00.html

tim

[Bradley]

No Offence

Glash - if you've taken offence at what I've said I'm sorry about that.

I have some financial knowledge and did at one time work for an investment house (now sadly defunct) and what I say about the internal workings of such is pretty accurate IMO. As you probably know, things like discounted loan/gift trusts are thought up by or copied by the bod employed by the investment house to think of such things. Once the basic model and wording is set-up and has been looked at by legal, it's pretty much sell as many of these (unalterable) packages as possible i.e. hit the WP button. You'll also know that some of these products need to be sold through IFAs to be tax and legal compliant.

Of course the IFA has a range of duties imposed by the FSA or equivalent which includes filling the getting to know your client questionnaire. This means that you should have done the bulk of the work before you even discuss suitable investment opportunities. I guess that this is the 3 to 4 hours you talk about.

Its then a matter of getting a suitable investment house to provide the plan. You can hire external analysts to come up with a suitable list or you can do what I did and google discounted gift - here's the 1st link I came up with:

http://www.friendsprovident.co.uk/co...oducts/iht_dgp

How long does all that take? Days, hours?

I also note from reading the financial press that more and more IFAs are quoting fees because more and more clients are becoming aware of what is charged and want to know that they are not getting charged unreasonable rates.

I don't expect anyone to work for nothing just for the charge to fit the work done.

[glashIFA@Paramount]

I could be wrong about the level of work here and no doubt you'll let me know if I am, but lets say you take 7 hours to complete the deal. With a fee of £1500 that just over £200 per hour or £400 per hour if you take the £3000 fee.

I really can't see that it would take longer to do the relevant paperwork for what is essentially a pre-packaged financial product.

As for the providers well they have even less work to do. It's literally the push of a button and the word processor produces the paperwork with the relevant names. For that they charge say 1% per annum for work that is essentially completed in year one.

Another way to think about it is 10% of the growth after ten years. No wonder they can link it to growth! This is why the banks etc are making obscene profits. It's also why there are so many IFAs out there. Once people realise the truth about what is being charged on an hourly rate costs will come down.

I'm sure your a very nice chap but I think that all IFAs over-charge unless they are challenged. IFAs aren't challenged about this sort of thing enough especially when the solution to IHT problems is essentially to gift cash - an almost no cost option.

Bradley, you're perfectly entitled to your opinion and you're right, i am a nice chap BUT I'm not a registered charity.

i don't know what you do for a living or where your expertise lies but it's clear from what you say that you're not an IFA!

You talk about 7 hours! I wish! I can spend 3-4 hrs just trying to find out what a client requires and what is suitable for them. Often they know they have a potential problem but don't know the solutions. This is not a one size fits all scenario -all options need to be considered, associated risks, pros and cons etc. You obviously don't know anything about the solutions - i provide bespoke advice to my clients - i DON'T give them a prepacked, off the shelf product. You are more than welcome to come and spend some time working with me if you want to see the "process" working.

i work with a lot of solicitors and accounts and, surprise surprise, a lot of IT contractors and they are all happy with my remuneration because they recognise what they're getting, the work involved and the cost of that work.

It's obvious you don't work for any of the investment houses either if you think it's "literally the push of a button" - absolutely no idea whatsoever.

My guess is that you've had dealings with an IFA before and went for the "cheap" option. You probably got crap advice, got your fingers burnt, lost money and are now on a personal crusade. You see, that's the problem, you get what you pay for............cheap is crap.

It's a pretty narrow thought process if you consider gifting money away is the solution to IHT - this is by far and away the least popular option for people for a multitude of reasons because mostly it's just not practicle and doesn't always work. That's why they're happy to pay for expert advice and access to alternative options.

[Bradley]

Charges

That's not a bet you'd want to take!

Sometimes the fee is higher! Depends on the work you have to do. Just for clarity, if i get paid a fee then i can't take 0.5% in annual commission - it's fees or commission, not both. With regard to the admin fee that the provider charges - surely you don't mind if they get paid for doing some work. Might be worth pointing out that a lot of providers now take AMCs (annual management charges) from capital growth - in other words, if your investment doesn't perform they don't get paid.

What sort of fee would i charge? A real ballpark figure would probably be somewhere between £1500 - £3000 - but could be more, depends what the client wants. But just to save you asking the question - it's not going to be less!!

I could be wrong about the level of work here and no doubt you'll let me know if I am, but lets say you take 7 hours to complete the deal. With a fee of £1500 that just over £200 per hour or £400 per hour if you take the £3000 fee.

I really can't see that it would take longer to do the relevant paperwork for what is essentially a pre-packaged financial product.

As for the providers well they have even less work to do. It's literally the push of a button and the word processor produces the paperwork with the relevant names. For that they charge say 1% per annum for work that is essentially completed in year one.

Another way to think about it is 10% of the growth after ten years. No wonder they can link it to growth! This is why the banks etc are making obscene profits. It's also why there are so many IFAs out there. Once people realise the truth about what is being charged on an hourly rate costs will come down.

I'm sure your a very nice chap but I think that all IFAs over-charge unless they are challenged. IFAs aren't challenged about this sort of thing enough especially when the solution to IHT problems is essentially to gift cash - an almost no cost option.

[Darren@UptonAccountants]

Iht

It's a shame that some people focus on what this kind of thing costs, as the Glash states, you should be looking at what it is saving....if advice costs £1k to save £5k, sound investment!

I can certainly testify to Glash's advice, he's sorted out the wife's pension and a couple of insurance policies for myself personally as well as a few other bits & pieces.....sound, honest & very frank advice, which makes a refreshing change from some of the other advisers have used in the past!

[glashIFA@Paramount]

What's the bet that your "fee" is just the same as the 5% initial commission you would have charged anyway! Even if you don't take that here's always the 0.5% per annum commission thereafter that'll make that up of course. This ignores the additional say 1% pa admin fee that the bond provider then charges!

Just so we're clear here. what sort of "fee" would you charge to place £100k of investment in one of these schemes for a 55 year-old man in good health? An average will do.

That's not a bet you'd want to take!

Sometimes the fee is higher! Depends on the work you have to do. Just for clarity, if i get paid a fee then i can't take 0.5% in annual commission - it's fees or commission, not both. With regard to the admin fee that the provider charges - surely you don't mind if they get paid for doing some work. Might be worth pointing out that a lot of providers now take AMCs (annual management charges) from capital growth - in other words, if your investment doesn't perform they don't get paid.

What sort of fee would i charge? A real ballpark figure would probably be somewhere between £1500 - £3000 - but could be more, depends what the client wants. But just to save you asking the question - it's not going to be less!!

[Bradley]

Costs

One of the benefits of being Independent is that we're able to offer clients the option of paying a fee (just like you accountants and IT contractors) instead of commission and i have no problems with that. As is so often the case, people focus on what they're going to pay.... not what they're going to save.

What's the bet that your "fee" is just the same as the 5% initial commission you would have charged anyway! Even if you don't take that here's always the 0.5% per annum commission thereafter that'll make that up of course. This ignores the additional say 1% pa admin fee that the bond provider then charges!

Just so we're clear here. what sort of "fee" would you charge to place £100k of investment in one of these schemes for a 55 year-old man in good health? An average will do.

[Mustang]

What about trust funds? Did anyone manage to set one up prior to Gordo closing the loop holes?

glashIFA - care to IM me with your contact details?

[glashIFA@Paramount]

Saw an article in the Times about these discounted schemes. Seems that all the IFA boys are getting excited by the level of initial commission that can be charged - 5% to 7%. The age of the person doing the gifting and their health are an issue too as well as a potential 20% tax charge if structured incorrectly. Any comments to make about that?

One of the benefits of being Independent is that we're able to offer clients the option of paying a fee (just like you accountants and IT contractors) instead of commission and i have no problems with that. As is so often the case, people focus on what they're going to pay.... not what they're going to save.

Of course, for discounted schemes age and health are an issue. If you've got a terminal illness and short life expectancy you're hardly likely to get a massive day 1 discount - even the Revenue aren't that daft, otherwise everyone would be doing it. That's why planning is important - these aren't death bed schemes.

The potential 20% tax charge is something that was introduced in the pre budget report and is only a potential issue if the amount of monies invested AFTER the immediate discount is higher than £285,000. You might as well have gone the whole hog and let us all know that there's also the potential for a 10 year periodic charge!!!

These are my comments!

[Clippy]

Saw an article in the Times about these discounted schemes. Seems that all the IFA boys are getting excited by the level of initial commission that can be charged - 5% to 7%. The age of the person doing the gifting and their health are an issue too as well as a potential 20% tax charge if structured incorrectly. Any comments to make about that?

Bradley - any links to this article?

[Bradley]

Charges

Perfectly legal, been around for years. Interestingly enough, as with all these type of schemes, they have been challenged but Revenue conceed there are no problems. Some slight changes in last pre budget report but nothing significant, just to do with levels of investment. This should demonstrate that Revenue not looking to do away with them as they've had years to do so.

With regard to access - depends on scheme used. Can have full access to capital if req'd although it will then revert back to estate for IHT purposes.

Saw an article in the Times about these discounted schemes. Seems that all the IFA boys are getting excited by the level of initial commission that can be charged - 5% to 7%. The age of the person doing the gifting and their health are an issue too as well as a potential 20% tax charge if structured incorrectly. Any comments to make about that?

[glashIFA@Paramount]

Interesting...

What is the current status of these planning opportunitites from the tax mans perspective? Are they valid (legal) schemes which would hold up if challenged, have there been any challenges and what are the chances of the tax man 'reviewing' their status?

Also, what type of access do they allow to any assets?
I would imagine a scheme like this comes at a trade off against limited access/future income.

Perfectly legal, been around for years. Interestingly enough, as with all these type of schemes, they have been challenged but Revenue conceed there are no problems. Some slight changes in last pre budget report but nothing significant, just to do with levels of investment. This should demonstrate that Revenue not looking to do away with them as they've had years to do so.

With regard to access - depends on scheme used. Can have full access to capital if req'd although it will then revert back to estate for IHT purposes.