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ScotEq Intl warns of tax-free dangers

IFAs must warn their clients of the threat of inheritance tax on supposed tax-free savings vehicles, cautions Scottish Equitable International.

Scottish Equitable Inter-national says there is a major problem with Peps, Tessas and Isas in that they cannot be put into trust, meaning beneficiaries will be taxed 40 per cent on the value of their intended tax-free savings.

Upon death, savings placed in such tax-efficient vehicles would be encashed and form part of the client’s estate, which, if over 275,000 would be caught for IHT.

The firm has calculated if a client has taken their full Pep or Isa allowance since 1987 – when these wrappers were launched – they would now have accumulated 274,303, if their investments had grown at the same rate as the average unit trust.

Additionally, if an investor had invested their maximum Tessa allowance, SEI says it is possible they might have amassed around 285,000, again beyond the current nil rate band of 275,000.

SEI is strongly urging IFAs to be aware of this issue and warns that “tax-free is not always tax-free.”

Scottish Equitable International technical manager Margaret Jago says: “We believe that it is likely that many investors will have crept over this threshold and they may not be aware that while this type of investment is tax-free throughout their lifetime, when the investor dies, they become part of their estate for inheritance tax purposes.”


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