TAX-EFFECTIVE INVESTMENT ADVICE DEMAND LIKELY TO SURGE
- 82% of advisers’ clients are higher rate or additional rate taxpayers but two out of five advisers do not routinely explain the benefits of tax efficiency on investments, research shows
Demand for tax-effective investment advice is likely to increase presenting a major opportunity for advisers to demonstrate their expertise and grow their businesses, new research* from HSBC Life (UK) Limited (“HSBC Life (UK)”) shows.
The research by HSBC Life (UK), titled The Three I’s of Investable Capital, in association with consultancy Technical Connection, found currently 50% of surveyed advisers’ clients are higher rate taxpayers while nearly a third (32%) are additional rate taxpayers.
HSBC Life (UK)’s study found advisers believe clients rate taxation as second only to inflation as the biggest threat to their invested capital and future financial wellbeing – 35% of advisers cited inflation as the biggest threat compared to 27% choosing taxation. Just 19% selected volatility and 18% low returns.
However, research with advisers shows 39% do not routinely discuss the benefits of tax efficiency in relation to investments with clients. Only 27% of clients questioned said advisers routinely discuss the tax efficiency of investments. Almost all (98%) advisers questioned said they believe tax efficiency on capital investments is important to clients while just slightly fewer (96%) of clients said the same.
Not routinely discussing tax efficiency on investments may partly explain why basic tax allowances are not being used in full – the research found advisers estimate that on average 52% of clients fully use the ISA allowance and 47% the pension investment allowance. The study found just one in five (20%) clients fully understand how insurance-based bonds work.
Mark Lambert, Head of Onshore Bond Distribution, HSBC Life (UK), said: “The proportion of clients who are additional rate or higher rate taxpayers will inevitably increase as a result of frozen thresholds, allowances, and exemptions and continuing wage inflation. These drivers point to the fact that clients are more likely to want and need advice on tax effective investment.
“This represents an opportunity to help to promote the benefit of tax allowance optimisation through regular tax health checks. Despite high client concern about inflation and interest in tax efficiency, advisers believe a relatively low percentage of clients know about or use key strategies.”
HSBC Life (UK’s) report analyses the full range of investable capital assets including equities, collective investments such as unit trusts and OEICs as well as ISAs, onshore and offshore bonds, defined contribution, and defined benefit pensions, VCTs, EIS, SEIS, structured investments, and crypto investments.
It highlights how capital investments can be structured to achieve intergenerational and estate planning, as well as the role of initial and ongoing advice in ensuring an optimal outcome from the investment of capital and the potential future tax treatment of capital investments.
Onshore bonds offer zero tax on cash dividends at a policyholder level while non-dividend income is taxed at 20%. Gains within the Bond are subject to UK life fund taxation which means that the policyholder is treated as having paid basic rate tax on these gains. Top slicing relief and 5%p.a. tax deferred rules on withdrawals remain. Lifetime transfers by way of assignment where there is no exchange of money or money’s worth are not taxable events and basic rate tax credit in determining policyholder tax on realised chargeable gains continue.
The HSBC Onshore Investment Bond, a tax effective medium to long term lump sum investment wrapper, can be accessed with a minimum investment of £15,000 providing the potential for capital growth while still allowing clients to make withdrawals from their investment. It offers clients access to around 3,800 funds via open architecture.
HSBC Life (UK) does not replicate funds offered by external fund managers. It enables investment in the funds directly, ensuring that consistency of approach across the investment solutions that advisers recommend to their clients.
Please click here to download the report: https://www.life.hsbc.co.uk/three-i-report/
Notes to Editors:
*Independent research conducted among a geographically representative sample of 200 advisers across the UK representing 200 companies who were interviewed on the phone. The sample was weighted to be representative for assets under management and number of RIs. Consumer research was conducted online with a sample of 1,000 clients with a minimum of £25,000 investable assets who currently have a financial adviser or saw one within the last three years. The sample was weighted to be geographically representative
Media enquiries to:
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Ellis Ford
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Citigate Dewe Rogerson
Eleanor-Fei Pinnegar
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Eleanor-Fei.Pinnegar@citigatedewerogerson.com
About HSBC Life (UK) Limited
HSBC Life (UK) Limited is part of the HSBC Group, one of the world’s largest banking and financial services organisations. HSBC Group serve more than 40 million customers worldwide through a network that covers 64 countries and territories in its geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. We aim to be present where the growth is, enabling businesses to thrive and economies to prosper, and, ultimately, helping people to fulfil their hopes and realise their ambitions.
HSBC Life (UK) Limited was founded in the UK in 1988 and offers insurance services to meet protection and investment management needs. Our services and solutions are available through HSBC banking channels and selected third parties, including advisers and aggregators. For more information on HSBC Life (UK) Limited range of services go to https://www.life.hsbc.co.uk/ and for more information on HSBC please go to https://www.hsbc.com
About HSBC Life
HSBC Life is the insurance business of the HSBC Group. We manufacture life and health insurance products in Hong Kong, mainland China, Singapore, India*, France, UK, Malta, Mexico, and Argentina. HSBC Life offers a range of insurance products to meet the protection, education, retirement, wealth growth and legacy planning needs of our customers. Our services and products are available through HSBC banking channels, selected third parties, including financial advisers and aggregators. *Through our joint venture, Canara HSBC OBC Life Insurance.
About HSBC Holdings plc
HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from offices in 62 countries and territories. With assets of $2,990bn at 31 March 2023, HSBC is one of the world’s largest banking and financial services organisations.