Legal & General
Discounted Gift Scheme
Type: Inheritance tax mitigation plan
Aim: Reducing IHT liabilities by investing in up to 10 unit-linked funds through an absolute, discretionary or flexible trust
Minimum investment: Lump sum £50,000
Investment choice: Up to 10 funds from choice of 12 Legal & General funds and 234 externally managed funds
Allocation rates: 96-101.25% depending on age, investment amount and annual withdrawal rate
Switches: 25 free fund switches a year, thereafter £25 each
Special offer: Extra 1% allocation
Offer period: Until March 31, 2007
Charges: Initial charge up to 4% depending on age, investment amount and annual withdrawal amount, annual 1.3% for Legal & General funds, 1.59-3.35% for external funds depending on fund
Commission: Subject to negotiation
Tel: 0845 273 0008
Legal & General’s discounted gift scheme is an IHT mitigation plan providing access to a range of 12 Legal & General funds and 234 externally managed funds.
On the face of it, Origen Financial Services technical manager Bob Perkins thinks this plan does not appear to be much different to other plans that have been launched lately, but he thinks it is worth closer inspection. “This product will add to the range of plans available to recommend to clients and it has the advantage of offering three options in relation to the type of trust chosen. At the moment there is no platform based investment option,” he says.
One aspect that appears to differentiate it from others in Perkins’ view is the fact that the funds can be accessed by the trustees to meet tax charges, which is not something that can be done with other products that are available. “The result is that, should the fund actually give rise to a periodic charge or exit charges in the future, cash can be taken from the fund to pay the tax,” says Perkins.
He adds that there are issues to consider in relation to partial encashments. “The same income must be maintained from the residual fund, which means that withdrawals could exceed the tax deferred 5 per cent. But for the vast majority of cases this should not present a problem,” says Perkins.
Perkins observes that L&G seems to have spent great deal of time on the supporting literature and the plan documentation. “The literature is clear and the language is fairly plain, with plenty of flow charts and glossaries to help IFAs and clients find their way around the plan. Initial charges are based upon age, amount of investment and level of withdrawals and there is an early encashment penalty in the first five years of the plan, starting at 7 per cent and going down to 2 per cent in year five.”
Discussing the nuts and bolts of the plan, Perkins says: “The underlying product is an onshore investment bond, only available through the discounted gift scheme. The minimum investment is £50,000 and the bond will be divided into 100 segments, although if required it can be divided into £50 segments subject to a maximum number of 9,999.”
He notes that there is an extensive range of fund options including external fund links. Although the maximum number that can be held is limited to 10, Perkins believes that should not necessarily restrict diversification. “My main concern would be the fund management charges, which seem a bit on the high side for the external fund links in particular,” he says.
Assessing the potential competitors, Perkins says: “There is a growing number of products in the market and hence significant competition. However, they have all been updated following the Finance Act 2006 and so the new offerings are all finding their place in the market. The main competition will come from established players such as Prudential, AXA Isle of Man and Skandia. But there are others that have competitive products and very good technical support, such as Standard Life.”
Suitability to market: Good
Investment choice: Average
Adviser remuneration: Average