Investment Bonds, Charges & the 5% rule
rwooffatst
Member
In relation to UK investment bonds, what are the parameters for charges fees to be paid out of the bond whilst not impacting the 5% allowance?
I am aware that guidance from HMRC concludes that an OAC will fall within the 5% allowance where the client is being provided investment advice.
However I read an article that states:
"Guidance from HMRC, confirmed to FTAdviser, suggests provider-facilitated adviser charges for advice on underlying investments can be paid by the provider from its profits in some instances. This is due to the fact HMRC views the provider as the owner of assets.
This would mean the full 5 per cent deferred allowance can be taken as income. The FCA confirmed it is looking into the issue.
However, further clarifications provided to FTAdviser could mean this advantage is not applicable in the majority of cases.
HMRC said that the guidance would apply if the life company receives the advice “directly”, rather than the policyholder, then the guidance would apply and the charge can be paid out of provider profits."
(https://www.ftadviser.com/content/91eac5c2-b4a0-5862-9421-a483c7f079c2)
I am curious if anyone has any idea as to what situations would be considered a provider receiving advice directly?
Thanks!
Comments
It's called an investment adviser charge and it can only be for investment advice, legally the advice is given to the bond provider on what funds/investments they should use to underpin the liability on the bond. The provider will often "delegate" to the bondholder to tell the investment adviser about investment objectives etc etc
It can't be used for anything else - anything else is OAC e.g. whether the bond is still suitable, tax advice, withdrawals levales (financial planning basically).
There appears to be a grey area where if a firm does both advice types whether it can only be OAC.
Thank you Les!
I think this is how offshore providers structure it whereby you can be appointed separately as both the adviser and the delegated investment manager, the latter being entitled to charge a fee that is not an OAC. Not aware that any onshore firms do it, and it's still not clear if the investment adviser's fee is 'paid from profits' rather than via a direct deduction from the client policy.