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Dilemma of what to do with fund as deadline looms

The following details are those of an actual scenario might even merit the attention of MM columnist Tony Wickenden.

Many of MM&#39s readers may be involved in similar situations now or in the future.

Clifford and Mary (actual names) spent all their working lives in Nigeria and brought up their two daughters there. Cliff was originally a permanent civil servant but with the advent of Nigerian independence received compensation for loss of career and entitlement to a small British Government pension at retirement.

Cliff subsequently worked as a contract officer for a series of new Nigerian states and, when their children went to boarding school, Mary did the same. They finally retired to Britain in 1995.

In 1983, concerned about retirement and the increasing risks to life in Nigeria, Cliff and Mary invested a lump sum in an inheritance trust in the form of a London Life joint offshore bond. The fund was managed by a Manx firm which was also the selling agent.

The original intention was to use the 5 per cent withdrawal facility to provide tax-free income in retirement and, in the event of their early deaths, to provide their daughters with an IHT-free inheritance.

At the time Cliff was 45 and Mary 43. Since then, things have changed. The Inland Revenue has designated the bond as a personal portfolio bond, the Willoughby case has happened and the bond fund escaped liability for an annual tax charge.

The original life office has been replaced by Royal & Sun Alliance and the original fund manager replaced by Royal Bank of Scotland.

Royal & Sun Alliance has announced that the fund (RBC&#39s sterling cash fund) will close on October 29, 2001.

Apart from switching to another fund from the same stable, what are Cliff and Mary&#39s options and the tax implications of each? Even if they decide to switch among the funds of the same provider, what principles should guide their choice?

At the most recent valuation, the existing fund was £235,000. Psychologically, Cliff and Mary have relatively low risk profiles, possibly lower than necessary. They own their apartment outright, have a small pension (but no state pension) and other assets. However, this fund is their main asset and they make irregular tax-free withdrawals to top up income or provide capital as required.

Cliff has a small basic-rate tax liability and Mary is a non-taxpayer. Cliff is now 74 and Mary 72. This is a real-life problem that has to be solved by mid-October. I would like to speak to competent advisers in this field.

George Stride

Bognor Regis, West Sussex


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