The Client
Mr Jones is a UK national who has lived in Dubai for the past 15 years. He plans to return to the UK within the next 10 years and wants a structure that can adapt to changing circumstances over time.
His objectives are to:
- Consolidate his investments within a structure that simplifies administration and tax reporting
- Retain his Dubai-based asset manager
- Establish a structure that remains effective after his return to the UK
- Create a source of retirement income
- Facilitate controlled wealth transfer to future generations
- Mitigate potential exposure to UK inheritance tax (IHT).
The Solution
Mr Jones sets up a unit-linked life insurance policy designed to support both his current circumstances in Dubai and a future return to the UK. The arrangement includes:
- An initial investment of US$5 million, with additional premiums of US$1 million per year for the following 10 years.
- Retention of his existing Dubai-based asset manager, allowing the underlying investments to continue to be managed in line with his established investment strategy.
- 1,000 policy segments, providing flexibility for future withdrawals, gifting and restructuring opportunities.
- Assignment of the policy into a discretionary trust benefiting himself, his spouse, children and grandchildren.
- A trust structure designed to evolve over time, providing flexibility before and after a return to the UK and supporting long-term succession planning objectives.
The Benefits
Simplified Tax Reporting and Investment Management
While resident in Dubai, Mr Jones is not subject to personal taxation. Following his return to the UK, gains are assessed only when policy benefits are accessed. By that stage, he will have contributed a total of approximately US$15 million to the policy, while continuing to work with the same Dubai-based asset manager throughout the accumulation period.
The structure also allows:
- Gross roll-up of investments within the policy
- Simplified tax reporting
- Access to the 5% withdrawal allowance
- Potential application of time apportionment relief, proportionate to his period of non-UK residence.
The withdrawal allowance can also provide a valuable source of retirement income. Based on total premiums of US$15 million over the 10-year period, cumulative withdrawal allowances of approximately US$5.5 million would be available for drawdown upon resuming UK residence and will continue to accumulate in future years.
A key advantage is that Mr Jones can continue to work with his existing Dubai-based asset manager throughout the planning process and after his return to the UK. This avoids the disruption and cost of restructuring investment arrangements while allowing succession, tax and retirement planning objectives to be implemented around an established investment strategy.
Inheritance Tax Planning and Controlled Distribution
As Mr Jones is not currently a UK long-term resident, the policy is treated as non-UK property and remains outside his estate for UK IHT purposes.
Assigning the policy into a discretionary trust provides:
- A framework for controlled distribution to future generations
- An exempt transfer for IHT purposes at the time of assignment
- The potential for the trust to remain an excluded property trust if Mr Jones dies before becoming a UK long-term resident
- Continued preservation of time apportionment relief where gains are assessed on a UK-resident settlor.
Flexibility To Adapt Over Time
As Mr Jones approaches 10 years of UK residence, the arrangement can be reviewed and adapted to reflect his changing needs.
If access to trust assets is no longer required, he may choose to be excluded as a trust beneficiary. Alternatively, if ongoing access remains important, the policy may be assigned out of trust and settled into a new trust structure designed to retain access while maintaining favourable IHT treatment.
The assignment and subsequent resettlement can generally be undertaken without triggering an immediate income tax charge and without creating a chargeable transfer for IHT purposes.
This flexibility allows the structure to evolve alongside the client’s circumstances while preserving the broader succession and estate planning objectives.