Holistic legal services

It is only three short years since the SRA notified law firms with in-house financial advisers that it was minded to discontinue their status as Authorised Professional Firms, on account of its apprehension about the consequences of dual SRA/ FSA regulation. Now, under new management, it is extolling the virtues of multi-disciplinary practices with the zeal of a new convert. SRA executive director Crispin Passmore, who was previously with the Legal Services Board (LSB), described MDP ABSs as "exactly the type of business that the act was expected to facilitate. A one-stop-shop for consumers, accountants, surveyors, financial advisers, estate agents and a whole host of other professions working with solicitors to offer a combination of professional services."

So, what has brought about this change of attitude?

Certainly, pressure from the LSB, which has suggested that the SRA might have been unduly protective of traditional law firms has played a part. Applicants for licences for MDP ABS have complained about the complexity of the application process and the extended time frames involved. But another factor may be the spur of regulatory competition. The Institute of Chartered Accountants in England and Wales (ICAEW) expects to be able to process applications much more quickly than the SRA and at a lower cost. Within weeks of becoming a licensing authority the ICAEW licensed its first MDP ABS, Kingston Smith. Chris Kenny, CEO of the LSB was prompt with his congratulations, commenting: "I hope that this is the first of many probate licences issued as ICAEW commences its role as a regulator in the legal services sector."

Holistic services

The SRA has recognised the major grey area to be tackled as that of legal activities which are not reserved to solicitors, and could be conducted by non-solicitors in an MDP. It has accepted in principle that these should be regulated by the individuals' own regulator, and indeed it has gone further, by starting to deliberate as to how law firms might be permitted to offer non-legal services without having to become ABSs. The buzz word on the lips of all the legal regulators, 'holistic', has been borrowed from the financial planning lexicon.

A prime example of the need for an holistic professional service has been provided by the government, with its latest set of proposals for the liberalisation of pensions. The abolition of "death tax" on pension assets propels pensions into the sphere of interest of every wills draftsman and estate planner. You only need to cast a sideways glance at the class action being mounted by 900 female divorcees, who contend that the issue of pensions was neglected in their divorce proceedings, to appreciate that the carrot of business development is accompanied by the stick of potential litigation for those who fail to see the writing on the wall.

Pensions have now become the most tax-efficient savings medium ever devised, and the expectation on the part of beneficiaries that undrawn pension assets would pass to them free of tax on the death of the investor before the age of 75, up to the value of the current lifetime allowance, should provide the answer to the critics who fear that investors will be blowing their funds on Lamborghinis.

ISAs have been made more attractive by the increase in the annual allowance to £15,000, but they provide no escape from inheritance tax and it seems likely that subject to earnings, investors will see the attraction of applying ISA funds to fund pension contributions, thus picking up tax relief en route before withdrawing 25 per cent in the form of tax-free cash.

Equally, the ability to draw tax-free cash as from the age of 55 for paying off mortgages, investing in second properties or setting up trusts, while delaying the withdrawal of pension income so as to preserve the right to continue investing up to £40,000 per annum in the tax-assisted pension fund, will appeal to many. Only if income has been withdrawn is the annual allowance reduced to £10,000 per annum.

So what's next?

First, the likely withdrawal of higher rate tax relief on contributions, which has usually been an incentive to reduce tax rather than to save for retirement. Then, a review of inheritance tax, bearing in mind that post-75 death benefits are now to be subject to income tax. Has tax planning ever been so exciting?

Ian Muirhead is a director at Solicitors for Independent Financial Advice (SIFA)

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