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Standard simplifies IHT plan structure

The Investment Management Association has called for an urgent summit meeting with the Treasury in a bid to save tax breaks for hundreds of funds.

The IMA called the Treasury last week after spotting small print in
the pre-Budget statement that could spell the end of corporation and
capital gains tax breaks on qualified investor schemes.

The Government plans to clarify the position of unit trusts which
have multiple asset classes of units and introduce measures that
apply tax breaks only to those funds where each investor holds less
than 10 per cent of the fund.

This could spell disaster for many funds held by life companies,
particularly firms such as M&G, Morley and Legal & General
unit trust management, which all have heavy investment from parent
companies Prudential, Aviva and Legal & General respectively.

On top of this is money invested from fund supermarkets. Fund
managers do not see the end client with these investments since the
money is invested in the name of the supermarket.

The change stems from Chancellor Gordon Brown’s tax avoidance
crackdown. The Treasury is concerned that high-net-worth investors
could get funds together and create a private fund to get tax breaks.

IMA director of regulation and taxation Julie Patterson says she was
stunned when she saw the planned rule changes, particularly since
they use the expression “introducing a measure” rather than a
consultation. She says: “This could be a real problem and we need to
see exactly what the Treasury intends. There was some indication that
they were planning something like this but to go ahead without any
further consultation could be damaging. It is as though they do not
fully understand how these investments work.”

Standard Life has relaunched its IHT loan plan with a simplified
application process and a choice of two trusts.

The plan allows the client to retain access to their capital and is
based on the firm’s range of life bonds. Clients lending capital to
appointed trustees can use the bond’s annual 5 per cent capital
withdrawal facility and any growth in the bond is outside the
client’s estate.

Standard says its rethink of the plan reflects increased interest in
IHT planning products.

Its prior offering had a complex application process, with different
offerings sold in the Scottish, Northern Ireland, English and Welsh
markets. The revamped offering has just one simplified application
form and is a multi-jurisdictional product.

Senior technical manager John Lawson says both absolute and flexible
trusts are available. Both run for 76 years and investors pay the
standard bond charges.

Lawson says: “We have simplified the application process and there
is a Q&A for the adviser to run through with their clients and
the bond has a fund supermarket behind it. With the house price
crunch, many more homeowners are facing IHT liabilities and IFAs are
also looking to diversify away from regular to single-premium
business.”

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