Products, wrappers and tax-efficient vehicles on platforms
What this domain tests
The wrappers and vehicles available on a platform, how they are taxed, and how platform rules interact with product governance and clean share classes.
Wrappers available
- ISA (cash, stocks and shares, innovative finance), Junior ISA, Lifetime ISA, SIPP, SSAS, general investment account, onshore and offshore investment bonds, VCT and EIS, and trusts.
- Pension freedoms (2015) allow flexi-access drawdown and UFPLS, with 25% tax-free cash. The annual allowance is £60,000 (2024/25) with three-year carry-forward. The lifetime allowance was abolished on 6 April 2024 and replaced by the lump sum allowance (£268,275) and lump sum and death benefit allowance (£1,073,100).
- ISA allowance is £20,000 (2024/25). LISA: £4,000 a year, 25% government bonus, age 18–39 to open, £450,000 property cap, access at 60.
- CGT annual exempt amount £3,000 and dividend allowance £500 (2024/25).
Share classes and product governance
- Post-RDR, platforms hold clean share classes with no commission embedded; the platform charge is separate. Legacy bundled classes persist on some older books and are being converted.
- PROD 4 requires a defined target market, fair value assessment and distribution strategy. Platforms must ensure panel products suit their clients.
Worked example
A 58-year-old holds £300,000 in a SIPP and wants income now. She can take 25% tax-free cash (£75,000) and move the rest to flexi-access drawdown, or take UFPLS where 25% of each payment is tax-free. If she has unused personal allowance, phased UFPLS may reduce the tax bill. Reason: the wrapper is identical; the tax result depends entirely on how benefits are crystallised.
Traps that cost marks
- Referring to the lifetime allowance as still in force.
- Confusing the LISA 25% bonus with pension tax relief.
- Forgetting that offshore bonds roll up free of tax but gains are charged on encashment, subject to the 5% annual withdrawal allowance.
- Assuming all share classes on a platform are clean.