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What the 2013 Budget Means for Financial Planners

VIDEO: Tony Wickenden of Technical Connection explains the issues that financial advisers should be addressing with their clients following the 2013 Budget

Jon Standring 2 April, 2013 | 7:04PM

Jon Standring: I’m here with Tony Wickenden, Joint Managing Director of Technical Connection, to talk about the 2013 Budget and how it affects financial advisers and their end clients. Welcome. 

Tony Wickenden: Good morning, Jon. 

Standring: Good morning. So, let’s start with, Tony, can you tell us about the main themes of the Budget from a financial adviser’s perspective? 

Wickenden: Yes, but the main things are always going to be a bit constrained by the economic backdrop, which isn’t great, as we all know, and the fact that so much is announced in advance these days. You kind of know your Christmas presents in November. So against that background, there was limited scope. There is always going to be a few surprises, but I think on the whole the news was relatively good, I think, for financial planners. The main themes sort of coming through from the Budget announcements and the changes that have been preannounced in the Pre-Budget Report and in the Finance Bill, were mainly emphasis on the capital side to try and stimulate the growth in building with the Help to Buy scheme, which got a lot of interest on the day, that was a relatively new announcement--help people get mortgages, get on to the property ladder. 

The interesting, for financial planners at least, proposal to at least discuss the redevelopment of commercial property into residential property, which could be quite interesting to hold in sight to see if we’ve got a way to go yet, but that was another announcement. 

Help for families with a new childcare voucher scheme coming through in 2015, and even the CTF into JISA actually. 

Then you’ve got help for businesses, that was quite big announcement to say this is the place to come and do your business really to the world with a further reduction in the corporation tax rate, and we’re going to be moving to a 20% rate in the not-too-distant future, a single 20% rate of corporation tax, which is pretty much the lowest anywhere in the developed world according to George Osborne, so it must be true. 

Relative calm with inheritance tax, that’s quite a big area and, of course, as we know, there’s been further constraint on pension contribution. This is important for advisers, because they need to see pensions as part of the investment solution, not something that stands on its own. These days you just consider your whole investment portfolio as opposed to just the pension. So I think they were the main themes that I saw of relevance to financial planners from the Budget. 

Standring: And what are the main implications to actual end investors then? 

Wickenden: For the investor, I think there’s – the main concerns of investors, of course, what’s going on in the world at large, Cyprus in particular, and volatility and what’s going to happen to my money and should I leave it in cash and all of that, all of which is slightly out of my remit, but nevertheless, the most important thing. But on the tax front from the Budget, what we knew about and maybe have forgotten in all the other stuff that’s been going on, is the reduction of the additional rate of tax from 50% to 45%. It’s the top rate paid by people on over £150,000 [annual income]. We’ve got the further increase in the CGT exemption, which is sort of unfrozen and we know it’s going up to £11,000 next year. 

The increase to ISA contribution, the fact that you can put AIM shares in ISA, which was another theme actually I didn’t mention. Seems to be bit of an intention to generate interest in the growth markets, the junior markets with AIM listed stocks. Of course, with estate planning for the clients of financial planners is quite an important area, given that they’ll be focusing on inevitably the clients with slightly more money, able to pay for advice, and those are the ones who are more likely to have an estate planning issue. 

Standring: Okay. So you mentioned estate planning then, so inheritance tax has been sort of quiet in the last couple of Budgets. What were the implications for estate planners in this Budget? 

Wickenden: Yes, estate planning has been relatively calm. But it shows that the government with their intention is to keep on fine-tuning their anti-avoidance provisions. It shows that they’re still interested. So we’ve frozen the nil rate band of £325,000 till 2018/19, which is apparently a way of helping to fund for the long-term care cost that the government are chipping in for – with the cap up to £72,000. That freezing of the nil rate band inevitably means that over time more people will come into the inheritance tax net. If we got inflation taking off supposedly and the nil rate band frozen, more of your assets will fall into the net. 

Then we had a really interesting to us, sad that we are, issue on inheritance tax was a little bit of anti-avoidance on certain loan-based schemes, where people were borrowing money and investing in exempt assets, or assets that qualified for relief. So effectively the debt was set off against your estate, and you invested in an asset that was excluded from inheritance tax, kind of double bubble as it were. So there’s been a bit of targeted avoidance just aimed at that, and also loans that were never intended to be repaid. So it shows the government hasn’t quite forgotten inheritance tax, and if people are kind of exploiting … at least loopholes, then they’re going to be going for it. So something I think for estate planners, financial planners, you have to embody estate planning into their delivery, should just be aware of when they’re advising clients. 

Standring: Okay. So, again, you mentioned a couple of limits there. So aggressive tax avoidance has been very topical over the last year, sort of Jimmy Caan comes to mind when you talk about the avoidance. So what can we expect from the government on the revenue and how is that going to impact financial advisers over the next year? 

Wickenden: Yeah, there’s been no change. It’s been absolutely relentless. It’s a shame for Jimmy Caan; every story about tax planning, the editor seems to be, what should we put on the front page, a picture of Jimmy Caan doing that. So the high profile does get – it gets the news and that’s a really important part of the job of the government to change the culture of tax planning, so they say. I think they’ve been incredibly successful over a very short period. So they are going for aggressive schemes and let’s not forget that, and that’s an issue that I think advisers need to bear very carefully in mind that it is aggressive only hedge schemes as opposed to tried and tested tax planning and tax mitigation that the revenue are after. 

What we will see in the summer is the kind of highlight of that whole initiative to prevent avoidance, and that’s the general anti-abuse rule, which again will shore up and significantly add to the success of the government, again, in tribunals and the courts, the publicity campaigns they have against particularly the rich and famous, because it catches the eye. And it changes the cycle, the disclosure of tax avoidance schemes to get an early warning of what people are intending to promote, and then drawing on FSA principles of suitability, which I think is quite interesting, to make people aware of schemes that they are going to attack. Put all of that together and you get this complete flip in the tax planning community as it were, from “What can I do to avoid tax? A bloke down the pub said I can do this…” to “I actually only want to do something which isn’t going to get me involved in a fight with HMRC.” So that change to the culture has been very successful, and I think we’ve just seen more of it, certainly with the – once we get the implementation of the General Anti-Abuse Rule, I think that will really make a big change too. 

Standring: Okay. And then so it’s finally post-RDR world, the emphasis is on financial advisers delivering value service ongoing. Did this Budget represents help or hindrance to their business? 

Wickenden: Overall, I think it represents help actually to the financial planner’s business. So I think it certainly means the individual clients and corporate clients are much more open and needful of advice. The system hasn’t got any simpler. The fact that people will be concerned about the anti-avoidance provisions, they want advice and reassurance that what they’re doing and what’s being proposed is valid and is going to work. There’s a great need for constant recalibration of the suitability of the portfolio, of course, given what’s going on globally economically. And also, the wrappers that people use to wrap their portfolio, as you know, is the most appropriate wrapper given the tax change, and then you’ve got the underlying estate planning. So I think put all of that together, there’s an absolute need for advice, and it goes to the heart of why buy advice. They’ll buy advice on areas where they’re unsure and where it’s important. So put those two things together and there’s quite a lot of those areas and I think the Budget generally and the environment we’re in means that people need advice more than ever. 

Standring: Thanks, Tony. 

Wickenden: Pleasure. 

Standring: For Morningstar, I’m Jon Standring. Thanks for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Jon Standring

Jon Standring  is Adviser Liaison with Morningstar UK.

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