Estate and tax planning involves balancing the timely and efficient transfer of wealth with maintaining control over how, and when, that wealth is accessed.
For those concerned about granting premature access to funds, or poor financial management by the recipient, an insurance-based wealth solution from an international provider with built-in restrictions offers a robust solution. Such policies can be effective for lifetime UK IHT planning and skipping a generation of tax between grandparents and grandchildren.
Utmost can offer these policies through Utmost Luxembourg S.A., for policy premiums exceeding £1 million.
Insurance Solution with Restrictions
The restrictions made under this type of wealth solution fall under two parts:
- Suppression of Surrender Rights: Suppression of the surrender rights for a set period, ensuring the policyholder or future holder cannot simply cash it in and collapse the planning.
- Limitations on Withdrawal: Limiting withdrawals to a defined percentage or amount each year, typically within the 5% annual allowance, preventing a taxable event arising.
These restrictions are set at inception and survive any subsequent assignment of the policy to an individual or trust, making it ideal for gifting wealth without handing over unrestricted access.
Potentially Exempt Transfers
If a person subject to UK inheritance tax (IHT) gifts or transfers the policy to another individual or a bare trust, it is considered a Potentially Exempt Transfer, provided it is done outright and without consideration. This means that, if the transferor survives for 7 years after making the gift, the policy will be completely excluded from their estate for UK IHT purposes. Should the policyholder pass away within the 7-year period, taper relief may apply, which can significantly reduce the inheritance tax liability.
Using a bare trust results in no ongoing inheritance tax charges, such as exit or periodic charges that apply to a discretionary trust.
Key Benefits
The key benefits are:
- Control Over Access: No changes to the restrictions can be made once the policy is issued.
- UK IHT Efficiency: Surviving 7 years brings it wholly outside of UK IHT.
- Flexibility: Setting limits with access.
Flexibility for Different Needs
The flexibility to meet different concerns and needs of families, individual access requirements, and separate planning through multiple policies makes this a valuable tool in estate planning for advisers and their clients.