Wrap up your troubles
12 January 2007
by Neil MacGillivray
It has been a number of years since I dealt directly with the complexities of administering trusts. I do remember burning the midnight oil on the run up to 31 January completing tax returns, struggling to get accounts and tax certificates out to strict deadlines and being continually harassed by some nephew or niece wanting valuations for the investments held in a trust which, they would benefit from when their old Aunt eventually passed on. There were also the issues of ensuring the trust investments were regularly reviewed, all tax exemptions were fully utilised and that a clear audit trail was available for all actions carried out should they be challenged at some later date.
At that time it was always my wish that someone would develop an affordable trust administration platform that could resolve these issues and free up time to focus on more profitable areas of the business. As quite often happens in life, as it has in my case, a perfect solution is often found after the event and in a place you may not have expected to find it.
The solution I have found is known as Wrap.
The term Wrap refers to an internet based transaction platform designed to hold an individual's complete investment portfolio. Wraps have been actively promoted by fee based Independent Financial Advisers over the last few years and the use of such platforms and the number of providers entering the market place is rapidly expanding.
It should be noted however that some Wrap providers restrict which investments can be held on their platform and it is important when looking for a Wrap provider that they offer open architecture, allowing access to the full range of investments available in the market place. It is also important that there is complete transparency of the charges applied and that any discounts or incentives given by the fund managers are passed back to the trust and not retained by the Wrap provider.
James Hay are the biggest provider of Self Invested Personal Pensions and from their wealth of experience gained in providing a flexible pension platform, have offered a transparent and open architecture Wrap platform for the last three years. Its Wrap consists currently of four fundamental investment silos. The first two, a Self Invested Personal Pension and an Individual Savings Account are not relevant to trusts. However, the remaining two silos, the Investment Portfolio and Offshore Bond provide an inexpensive, tax efficient and effective means of administering trusts.
The Investment Portfolio can hold collectives, equities, gilts and life bonds. It also has a bank account and as all transactions have to pass through this account it can be used to provide a summary of transactions for accounting purposes as well as providing a clear audit trail. The James Hay Wrap offers fifty free transactions per annum via Abbey Stockbrokers and collectives purchased through James Hay's Investment Centre are eligible for significant discounts helping to reduce costs, and enhance investment performance for benefactors and beneficiaries alike.
The Offshore Bond silo can hold cash and collective investments in a low tax environment. There is no tax on the gains at the time of the disposal of underlying investments and the only tax on income is irrecoverable withholding tax. Considering the harsh tax environment for investments held within Discretionary and A & M trusts, the return on investments held over the medium to long term within an Offshore Bond can be considerably enhanced. The Offshore Bond also allows the trust to move into cash based investments when markets are volatile or as a beneficiary approaches the age where they vest in the capital without incurring any capital gains tax liability. An Offshore Bond also allows regular tax deferred withdrawal of funds to beneficiaries and the entire bond or segments of it can be assigned over to beneficiaries without any immediate tax charge.
The James Hay Wrap also allows you to record other assets such as property, works of art etc that are held by the trust but are unable to be held on either the Investment Portfolio or Offshore Bond.
In addition, current valuations of all assets are available online at the touch of a button and a consolidated tax certificate issued at the end of the tax year.
If you are impressed by the features Wrap can currently offer then it's worth remembering that Wrap is still in its infancy and its functionality will continue to develop providing services such as completed HMRC tax returns and risk management tools.
If ever there was an aide to dealing with the issues of trust administration then surely Wrap must be it.