HSBC Life (UK) says demand for tax-effective investment advice is likely to increase, according to its recent research on investable capital.
The survey of 200 UK advisers and 1,000 clients revealed that 50% of advisers’ clients are higher-rate taxpayers while nearly a third (32%) are additional-rate taxpayers.
The study found that advisers believe that clients rate taxation is the second biggest threat to their invested capital and future financial wellbeing, with inflation getting top spot.
However, the research also indicated that 39% of advisers do not routinely discuss the benefits of tax efficiency in relation to investments with clients.
Only 27% of clients questioned said that advisers routinely discuss the tax efficiency of investments. Almost all (98%) advisers questioned said that they believe tax efficiency on capital investments is important to clients, while just slightly fewer (96%) of clients said the same.
HSBC Life UK said that not routinely discussing tax efficiency on investments may partly explain why basic tax allowances are not being used in full. According to the research, advisers estimate that on average, 52% of clients fully use the ISA allowance and 47% make full use of the pension-investment allowance. The study found that just 20% of clients fully understand how insurance-based bonds work.
Number of additional-rate and higher-rate taxpayers likely to increase
Mark Lambert, head of onshore bond distribution at 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, 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 that a relatively low percentage of clients know about or use key strategies.”
