Last week, I had one of these disturbing conversations with an adviser who was most put out that James Hay did not offer a joint general investment account (GIA).
His clients, both retired, had a large portfolio of collectives, one was a basic rate taxpayer the other higher rate and they owned a house worth in excess of £1m.
When I suggested that it would probably be best for them to have separate GIAs, I was told I did not have a clue what I was talking about and he promptly hung up.
I did ponder for a second or two if I was clueless. I have to say I have always considered when dealing with high net worth individuals that keeping their investment portfolios separate was the most practical and safest thing to do and I think I have sound reasoning behind this.
First of all, assets held jointly in a GIA will normally be held as joint tenants. This means that each party to the GIA has equal rights over the property while alive but when one individual dies the ownership of all the investments in the GIA goes automatically to the survivor.
You would not believe the number of times I have seen family disputes erupt where an individual has left his children from their first marriage a share of his investment portfolio only to find that the full portfolio automatically passed to the second wife who has no intention of passing any of the investments back.
Tax planning
Then there is the issue of tax planning. With the introduction of the lower rates of capital gains tax, dividend allowance and the personal saving allowance, the ability to create a combined tax efficient portfolio is more difficult to accomplish than on an individual basis. Take a simple scenario where growth will suit one individual over income for another. With a joint GIA this is not possible to achieve.
I did ponder for a second or two if I was clueless
Sticking with the tax theme, when assets are held as joint tenants, income paid is treated as being split equally. From a tax planning opportunity where one individual pays tax at a higher rate than the other, then a planning opportunity can be missed by being unable to direct a larger proportion of income to the individual in the lower tax band.
Legislation does allow spouses and civil partners who own assets as joint tenants the ability, by way of declaration, to split the income in another proportion other than 50/50. However, this is based on the assets being held directly in joint names.
Regrettably, where assets are held by a nominee, as they are in a GIA, then HM Revenue & Customs takes the view the investments are not deemed to be directly held and therefore the split in income can be in no other proportion other than on a 50/50 basis.
One other final thought. If a couple have different attitudes to risk then the only way this can be covered is by having their investment portfolios in their single names.
Even if they do have the same attitude to risk when a joint GIA is set up this may not always be the case over time.
For high net worth couples, care should be taken to consider the potential pitfalls of holding their investments jointly in a GIA as opposed to individually. An adviser must be confident of the reasoning behind recommending a joint GIA.
Normally, this is based purely on the grounds of cost but, as can be seen, it could prove far more costly not to use separate GIAs.
Clueless? I will leave you to judge.
Neil MacGillivray is head of technical support at James Hay
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