The Client
Mr Smith is a retired grandfather who wants to start his UK inheritance tax planning and skip a generation of inheritance taxation by passing on his wealth equally to his four grandchildren. He has £4 million to gift but is concerned about giving access to such a large sum of money too early.
The Solution
Mr Smith subscribes to four international bonds with Utmost Luxembourg S.A.
To meet Mr Smith’s objective of limiting access while gifting effectively, conditions are written into the contract which:
- Limit the right to surrender for a period of time/years (the “suppression period”).
- Limit the annual withdrawals that can be taken during this time.
The suppression period and annual withdrawals can be tailored on each contract to the age and needs of each grandchild that the international bond is to benefit.
Mr Smith can subsequently gift the international bonds to individuals if over the age of 18, or to a bare trust for minor grandchildren.
The Benefits
This gift is treated as a potentially exempt transfer for UK inheritance tax purposes, and Mr Smith has control over the age at which the grandchild has access to the capital. The international bond grows free of income and capital gains taxation (save for any non-reclaimable withholding taxes). In addition, the gift of the international bond into trust or to an individual is not a chargeable event for UK income tax purposes.
This solution is ideal for those who have surplus wealth to make outright gifts for inheritance tax planning, without the recipient receiving access at a young age.