Estate Planning Guide

Tax efficient trust investment Mr E is a widower who wants to assist his four grandchildren, aged between seven and 10. 9 Discretionary Trust Summary The strategy obviously did not utilise the trust’s annual capital gains allowance but, given the tax treatment outlined above, the loss of this allowance was felt to be immaterial. Wrapping an offshore bond around a discretionary trust enabled a tax efficient and administratively straightforward solution with minimal HMRC reporting. Mr E wants to pay the university fees and property purchase for his grandchildren in due course All IT is deferred until capital is withdrawn from the bond, so any IT liability that does accrue will fall upon the bond owner at the time of withdrawal. The trustees want to preserve the real purchasing power of the capital in relation to increases in university fees and property prices settled into a discretionary trust to ensure that his children, the grandchildren’s parents, retain control over the timing and extent of distributions £30,000 The trust property is invested in a Dublin based insurance bond “wrapper” through a major international insurance company. Investments within the bond can be modified at any time without any tax consequences. Chargeable gains on insurance bonds are taxed as savings rather than investment income. The returns achieved were exempted from CGT. The beneficiaries pay zero tax on the first £5,000 of gains in excess of their personal allowance. IT is therefore charged at the beneficiaries’ rate and not the rate applicable to the trustees. There is potentially no tax charge on the distributions while the young beneficiaries have personal allowances available. 0% tax £5,000 Return Risk A diversified portfolio is constructed within the bond to achieve an appropriate balance between the target return and the risk taken, and to ensure charges are cost effective. Bond As no reportable income or gains are likely to accrue, the trustees’ tax reporting involves minimal administration and, HMRC may not require any returns. Dublin INSURANCE BOND 90 91 CASE STUDIES CASE STUDIES