Joint GIAs

by on 02·08·2016

Often, we are asked to write reports recommending a joint GIA Portfolio rather than individual portfolios. This is often the case where costs are lower for the joint portfolio or the clients like the loyalty or sentimentality of holding their assets together in the one account. The following issues should be carefully considered when making the recommendation as Individual Portfolios are often more suitable. 

Control of who inherits investments on death

• Assets held jointly in a GIA/Collective Portfolio are normally held as joint tenants.
• Therefore, each party to the GIA has equal rights over the property whilst alive, but when one individual dies, the ownership of all of the assets passes automatically to the survivor.
• This loss of control over the assets may conflict with their Will and also impact on IHT planning.   

Tax Planning Issues

• Further issues arise on tax planning as the joint nature of the GIA means that income is treated as being split equally between the two clients which does not take into account that one individual may pay a much higher tax rate than the other.
• Legislation does normally provide the spouses with the ability to use a declaration to split the income in a proportion other than 50/50. However, where assets are held by a nominee, as in a GIA, the investments are not deemed by HMRC to be directly held and therefore the allocation of the income must be on a 50/50 basis.
• Given the introduction of lower rates of CGT, dividend allowance, the personal savings allowance and changes to individual's tax rates, the ability to create a tax efficient combined portfolio is more difficult to achieve than on portfolios established on an individual basis. 
• From an Inheritance Tax perspective, it is easier to plan using assets held in an individual's own name and provides a more flexible solution, than if assets are held jointly.

Attitude to Risk

• Where couples have different risk profiles, then portfolios should be established in their own names to take account of the level of risk that they find acceptable. 
• There is also the possibility that one of the client's risk profiles may change as time goes on and this can be handled easily when portfolios are already held in individual names.

Conclusion

The points above emphasise the importance of taking care when establishing GIA Portfolios for High Net Worth clients. The Adviser should be certain of the reasoning for recommending a joint GIA which can often be on the grounds of cost or client sentiment. As indicated above, this approach can cost the clients more over the long term and may not be suitable in many cases.