Trust in the guidance and benefits of planning

Added together, the total legislative change affecting financial planning brought in under the current government forms a remarkable conglomeration. The challenge to advisers to keep up with rapid changes is certainly significant.

Over the past year, the attention of the national media was caught by the well-celebrated U-turn in the treatment of residential property within sipps and, subsequently, by somewhat more of a chicane in the taxation of trusts by the Finance Act 2006.

It is true that since the changes to trusts were first proposed in the Budget back in March, there has been much confusion and debate about exactly how the changes are going to manifest themselves in the advice process.

However, despite this, you must not shy away from trusts because they still have a crucial role to play in ensuring clients get maximum value out of their hard-earned savings.

Our research shows that 46% of advisers stopped recommending trusts earlier this year as a result of the uncertainty the changes caused. This is understandable, and many of you that I have spoken to were waiting for confirmation of the final rules before recommending trusts again. Now that the Finance Act is in place you can focus once again on using trusts within your financial planning strategies.

The HMRC is still issuing guidance and confirmation on some of the precise detail of the Finance Act and some of the recent guidance should give you confidence when advising on life policies and other investments that are held in trust.

For example, you may want to take advantage of the 12-month window for reporting certain trust cases to HMRC, and delay reporting where possible because the number of policies you have to report on may decrease.

This is because the threshold at which you have to report trust cases to HMRC could increase from £10,000 to around £200,000 per case.

Recent guidance also suggests that topping-up existing life policies rather than recommending new policies may be beneficial to some clients – this applies equally to existing regular and single premium policies. HMRC has confirmed that increases to existing life policies will remain subject to the old taxation regime and not incur any new IHT liability, whereas new policies will fall within the new taxation rules.

Discounted gift trusts also look very attractive post Finance Act and you should largely be recommending these as before. HMRC has confirmed that gifts into DGTs are discounted by the value of the client’s right to receive capital payments and these capital payments will not be subject to exit charges under the new rules. In addition, the value of the policy held in trust for the purposes of the 10-year periodic charge remains the value of the policy less the value at that time of the client’s right to receive capital payments, not the value of the whole policy.

Sure, trusts are complex and the Finance Act has not made things any easier. However, the benefits they can deliver to the majority of financial planning scenarios cannot be ignored and this is where you can add significant value to your clients’ overall wealth.

You must make use of the technical guidance available and ensure you are well-placed to benefit from the likely increased demand for advice now the finer details of the Finance Act changes are being clarified.

Colin Jelley is head of trusts and financial planning at Skandia.

The views expressed are those of the author and not those of the company he represents.