The passing into law of Schedule 20 of the Finance Act 2006 has given people a lot more confidence to think about inheritance tax planning in general. For all those associated with the financial services sector, planning strategies connected with protection and investment plans are now well and truly back on the agenda but with the benefit of having undergone a necessary overhaul to check that they are fit for purpose under the new rules.Despite the fact that those with available cash can still successfully execute IHT planning while retaining some access to capital and income, most would agree that the combination of the gift with reservation rules, pre-owned assets tax and the latest trust alignment provisions (extending the IHT discretionary trust regime to all but bare trusts and special trusts) have overall made effective planning to reduce the liability more difficult. Those who cannot employ appropriate strategies that still work to remove the entire liability, often over time, may be wondering what to do. Especially given the enormous protection gap that continues to prevail in the UK (more than 2tn, according to Swiss Re), advisers should give serious thought to the role that appropriate protection plans in trust could perform to provide tax-free funds to meet the liability. The only change to the planner’s financial life will be the payment of the premiums – that is, if the beneficiaries do not agree to pay them. The policy will be for their benefit, after all. As I have said before, even for plans with significant sums assured, it should be possible to contract for them with relative certainty that there should be no IHT liability to be concerned about. The occasions on which a charge might arise will be on payment of the premiums, at the time of a periodic charge or on exit. There should be no periodic charge (and, thus, no exit charge for the next 10 years) if, at that time, neither: l The surrender value of the policy; l The market value of the policy, based substantially on the health of the life assured. l If the policy has paid out, the cash value of the trust, norl In the case of a non-term policy (and subject to clarification on this point), the total of premiums paid to dateexceeds the nil-rate band available to the trust. There will rarely be an exit charge under a protection plan before the first periodic charge. Quite a lot of conditions, I agree, but it should still be possible to proceed with relative certainty that there will be no charge. However, especially for bigger sums assured, there may be an understandable degree of nervousness. For these bigger cases, it may well be worth considering the Rysaffe strategy of splitting the policy up into sub-nil-rate-band amounts. I have covered this in a past article. This works particularly well for a taxpayer who has made no or very few chargeable lifetime transfers in the seven preceding years and where the transfers in question are exempt. In most cases, premiums paid to life policies in trust will be exempt under the normal expenditure out of income and/or the annual exemption. The more I think about it, the more that “doing a Rysaffe” looks like a sensible course of action for the bigger life policy trust cases, regardless of the purpose of the trust. This may be even more important if it emerges that the correct view of section 167 IHTA 1984 is that it is necessary to apply the section 167(1) “not less than premiums paid” valuation rule to other than pure term policies when applying the discretionary trust regime periodic charge to a life policy held in trust. What other life policy-based arrangements could benefit from the Rysaffe strategy? Well, naturally you would think that single-premium bond-based arrangements would be ruled out. This is because each of the earlier transfers in the Rysaffe series would be on the deemed settlor’s (and thus the settlement’s) cumulative clock. No problem, of course, when the transfer is exempt, as it is in most cases for protection plans, but a problem for substantial single premiums. But what about loan plans? Could there be scope here to use Rysaffe? Well, for the bigger plans, yes, there could. The key is that a loan is not a gift and if the plan is established with a loan, there will be no gift, and the way seems clear to consider Rysaffe where there is a concern that the value of the trust (taking account of the outstanding loan at the time, of course) may exceed the nil-rate band available to the trust. More on how this strategy might work next week.
With less than a month to go until the big split. Fidelity eyes will be closely watching the special situations fund for signs of outflows. From a peak of 6.5bn a few months ago, money appears to be trickling out and this week the fund dipped under 6bn.
Former Em Financial business development director Guy Garrard has joined Rooftop Mortgages.Garrard, who becomes sales director, left packager EM in June for personal reasons and initially said he wanted an extended stay away from the market, but he has now been tempted back by Rooftop.He has previously held roles at BM Soltuions and GMAC. Garrard […]
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The FSA has announced five new appointments to the Financial Services Consumer Panel.Kay Blair, Stephen Crampton and Lindsey Rogerson will join the panel straight away while Michael Chapman and Jenny Hamilton join at the start of next year.Bair has been a member of the Scottish Consumer Council since 2003, Crampton is an independent EU and […]
“There is a serious risk of unhappy times if a full-scale trade war breaks out. If that happened it would make Brexit look like a walk in the park”, says Loomis Sayles chief economist Brian Horrigan. Click here to read the full article
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