How can we help people plan the elephant in the room?

The regulated investment industry provides personalised advice and recommendations on regulated investments: GIAs, Stocks and Shares ISAs, Unit Trusts/Oeics, Insurance Bonds, Personal Pensions, and GPPs. According to ONS, this makes up 5.4% of total personal wealth in Britain (excludes business wealth). Where do you go for advice on the elephant in the room?

The financial adviser shows you how to save money you have already made using these financial products. They will show you how to save tax on these assets. They will manage your investments with strategic asset allocation to extract extra returns. They will hold your hands through turbulent markets to prevent your behaviours from adversely affecting returns. Then, 9 in 10 take fees as a percentage of assets under advice. Surveys suggest that the value they add might be as much as 3% per annum, and the fee they take (from the investment) might be 1% per annum. Fair deal. But with a narrow focus.

Meanwhile, 94.6% of your wealth is left up to you.

Occupational pensions aside (38%), the next most significant asset class is net property (property value – mortgage debt = 36%).

Property Assets Planning

Here are some stats (source: Rethink.tax):

???????2.6m landlords in the UK

???????Typical Portfolio comprises 7.3 properties valued at ￡1.2m producing ￡54,000 pa

???????45% are debt-free/ 40% via BTL mortgage

???????80% are privately owned

???????Average property value on 2009 ￡154,452 - ￡270,708 in '21 [up 57%]

Landlords should carefully consider the way they buy and hold UK property. The three main ways of owning UK residential property are:

• Privately own
• Company-owned
• Trust-owned

Private Property

Income from UK property is subject to UK tax wherever the owner is tax resident, subject to the provisions of any double tax treaty. UK rental income at rates between 20% and 45%.

UK tax residents are liable to capital gains tax (CGT) at 18% or 28% on the disposal of UK properties; however, total CGT relief can be claimed on disposal if it can be shown that the property has been the owner's principal private residence (PPR) for the ownership period.

The property will typically form part of the owner's estate upon death, so it could have a liability to UK Inheritance Tax (IHT) of up to 40% unless it is an exempt transfer (e.g., to a spouse) or is passed through a lifetime transfer.

UK landlords pay stamp duty land tax (SDLT) on residential property at marginal rates up to 12% depending on the purchase price (15% for additional properties).

Company Property

Annual Tax on Enveloped Dwellings (ATED) applies an annual charge between ￡3,700 and ￡237,400 on companies that own UK residential properties over ￡500,000.?There are reliefs available.

SDLT (Stamp Duty Land Tax) at a rate of up to 15% for UK property purchase by a company is payable. Again, there are reliefs.

Companies are also subject to capital gains calculations on disposals of UK properties; corporation tax is payable at 19% (25% with effect from 1 April 2023) by companies on the income and gains from the properties.

PPR relief is not available. On death, IHT up to 40%.

Trust Property

Trusts are subject to UK tax on income and gains from UK property.

UK trusts are subject to CGT on disposals of property.?The CGT rate for trusts is 28%, and trustees are entitled to an annual exemption at half the rate for individuals.

PPR relief will be available to trusts where a beneficiary meets the relevant criteria.

SDLT is charged to trusts at standard residential rates, and ATED does not apply to trusts.

Assets held within a trust are generally outside the estate for UK IHT purposes. However, trustees are generally subject to a ten-yearly charge of up to 6% of the property's capital value within the trust. As this charge is only calculated on the equity in the property, the trustees could choose to take out loans to purchase the property to reduce the equity in the property and therefore reduce the capital charges arising.

Holding a UK property through a trust can give similar tax benefits and reliefs compared to holding the property personally but can also reduce the impact of UK IHT on that property.

Property owners can transfer UK property to several other arrangements, which should fall outside the general charge to ATED and IHT.?It is likely to be particularly useful where the property is rented out or where PPR will not apply to a property.

An example of the Tax implications

If you seek no advice and bought eight residential BTLs - 75% LTV loans. And held them privately, as 8 in 10 landlords do. In 2032:

???????Portfolio Value is ￡1.6m

???????Rent Roll ￡112,000 pa

???????O/S Lending?￡900,000

???????Acquisition Cost ￡750,000

You could be holding a CGT liability of ￡238,000, an IHT liability of ￡280,000, and be subject to 40% tax on income. Potentially also subject to ATED and higher SDLT.

This tax liability can be mitigated by talking to a property tax expert at the start, a Chartered Tax Adviser. The potential savings from getting good advice right from the start can be significant.

Putting things into perspective

While we have 26,667 regulated investment advisers in the UK advising on a financial asset, that is 15% of the value of property wealth, there are only a handful of good property tax advisers.

Whether you get a percentage point or two extra on your regulated investment is relatively unimportant in the greater scheme of things. We need to put matters into perspective. Does it matter whether 5.4% of your wealth becomes 5.5% or 5.3%?

Whether you choose to run your regulated investments through advisers or direct-to-consumer platforms is pretty irrelevant, too, would you agree?

Eye-watering tax liabilities from getting asset ownership wrong is another matter altogether.

What matters are your strategies for total wealth? Would you agree?

It's worth asking your adviser what the perimeter of their advice is? Narrow or broad?

In their codes of conduct, professionals must be expert, experienced, and insured to advise you on an area. FCA-regulated advisers' perimeter is regulated investments only, as set out in the FCA Handbook Perimeter Guidance Manual. https://bit.ly/3x7osGV

What an Asset Strategist does is provide a concierge service. Where an area is beyond their level of experience, expertise, or insurance, they will introduce you to a specialist who can help.

Btw, an Asset Strategist can also be a specialist in an asset area. You just need to ask.

If you would like to know more, DM me.