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Pandemic delays important tax planning

12 Apr 2021

People have delayed making financial decisions, including important tax planning, as a result of the pandemic, according to a new poll of more than 700 financial advisers. The research, commissioned by Octopus Investments and conducted by VouchedFor1, revealed that six in ten (61%) advisers had clients who delayed financial decisions due to the pandemic.

Communication was identified as a potential cause of delay, with a quarter (26%) of advisers saying it had become harder to communicate with their clients during the pandemic, despite the increased use of technology.

James Hawkins of Isca Wealth Management, said:

“I find one of the biggest barriers to writing business is clients wanting to talk but never actually going ahead. It’s not that clients don’t want to do it, but it can take them a long time to come to a decision. Unfortunately, lockdown has been a great excuse for some clients to say, ‘I’ll tell you what, let’s wait until this is over.’”

Tax efficient investing

More than half of advisers (53%) polled also said they had clients who could benefit from tax efficient investments but had not yet engaged with them on the topic. Being able to communicate effectively with clients was particularly important for these products given their higher risk profile, with 38% of advisers citing the increased risk as a barrier to advising on them.

Paul Robinson, Director at Moneyweb IFA, said:

“With all inheritance tax planning, the earlier a client starts, the better position they’re going to be in further down the line. The problem is not going to go away if they don’t do anything about it. And ultimately, delaying conversations could cost a client 40% of their wealth.”

Paul Latham, Managing Director at Octopus Investments, added:

“Not all tax planning will be considered urgent, but estate planning is certainly one area that some clients can’t afford to delay, as it’s often difficult to predict how soon it might be needed. The clock is always ticking.”

The research highlighted the benefit of advisers speaking to their clients about tax planning solutions before someone else did. Of those surveyed, 39% of advisers said that recommending tax efficient investments had ensured they had not lost clients to other advisers or wealth managers. It has also helped advisers grow their business, with four in ten (40%) saying that advising on tax planning products had led to them advising on more assets for their clients.

Evolving tax planning needs for retirement

Looking beyond the short-term challenges presented by the pandemic, the research identified potential changes in people’s retirement planning needs in the future.

Eight in ten (81%) of the advisers polled expect the lifetime pensions allowance (LTA) to impact more of their clients over the next ten years (polling was conducted in January, prior to the LTA freeze announced in March). A similar proportion (79%) also said that clients have become more mindful of needing access to their money later in life, suggesting that more flexible estate planning options may be needed.  

These were the same two areas that advisers identified as drivers for tax efficient investments over the next five years, according to financial advisers.

Which of the following are most likely to increase demand for tax-efficient investments? (Top five)

  • Clients who have an inheritance tax liability – 79%     
  • Clients who are likely to be affected by their pension lifetime allowance – 76%
  • Clients who are selling or have sold a business – 65%
  • Clients who are business owners or self-employed contractors – 60%
  • Clients who anticipate a capital gain- 51%

Paul Latham, Managing Director at Octopus Investments, said:

“Over the last decade we’ve seen pension contributions become increasingly restricted, particularly as a result of the lifetime allowance. Now that it’s frozen until 2026, more people are at risk of being caught in the net and I think we’re likely to see increased demand for tax efficient alternatives as a result. Similarly, with the Nil Rate Band and Residence Nil Rate Band both frozen too, more people are at risk of being hit by inheritance tax with Government estimates indicating an extra £1 billion in IHT receipts over that period2.

“The other significant factor to consider is that we are all living longer. There are clearly lots of implications of this for financial planning, but it can make estate planning in particular more difficult. This is largely because the common strategy of gifting is riskier, as it’s hard to know how much money you will need in later life.

“That’s where investments that qualify for Business Property Relief could become more popular, as they can be passed down free of inheritance tax, provided they have been held for two years. As the asset itself is free from inheritance tax, there is no need to give it away before death and the client retains complete control of their money.”

Susie Bewell, Raymond James Investment Services, added:

“Clients tend to see estate planning in black and white terms – we can keep the assets, or we can give them away. Once clients understand that it doesn’t have to be as inflexible or expensive as they may have thought, they’re a lot more open to considering estate planning sooner.”


Notes to editors:

(1) Research conducted by VouchedFor via an online survey of 714 financial advisers in January 2021.

(2) HMT Treasury – Budget 2021: Policy Costings

For journalists in their professional capacity only. The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest. Tax treatment depends on individual circumstances and may change in the future. Tax reliefs depend on the portfolio companies maintaining their qualifying status. The shares of smaller companies and VCT shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell. Personal opinions may change and should not be seen as advice or a recommendation. We do not offer investment or tax advice. We recommend investors seek professional advice before deciding to invest. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. We record telephone calls. Issued: April 2021.