UK portfolio bond range for retail clients. Guide for financial advisers only

Transcription

1 ABOUT our UK portfolio bond range for retail clients Guide for financial advisers only

2 Contents Introduction 3 Choosing the right bond for each individual client 4 Type of client 4 Whole of life or redemption? 5 Which jurisdiction? 5 Portfolio bonds at a glance 6 Minimum currency amounts 7 Choice of currencies 7 Making life easier for you and your clients 9 Powered by Wealth Interactive 9 Some of the services available through Wealth Interactive 10 Giving you and your clients control 10 A choice of investment opportunities 11 Transferring and consolidating existing assets 11 Negotiating discounts 11 Investment risks 12 Making the most of tax opportunities 13 Benefits for UK residents 14 Flexible policy clusters 14 Benefits of using a trust 15 A wider world of wealth management opportunities 18 Appointing a discretionary fund and/or discretionary asset manager 18 Choosing an authorised custodian 18 A choice of trusts 19 Giving your clients easy access to their capital 20 Total surrender of individual policies or one-of part surrender 20 Regular withdrawals 20 Fees and charges 21 Facilitating adviser fees 21 Nominated Asset for Ongoing Fees 21 A choice of currencies 22 The impact of adviser fees from the bond on clients 5% tax deferred withdrawal allowance 22 Authorising the agreed level of fees 22 Fund adviser fees 22 Initial and ongoing fees when a top-up is invested 22 VAT and adviser charging 22 What happens if a client returns a cancellation notice? 22 Initial fees 23 Ongoing fees 23 facilitation options where the investment is an asset with a third party 23 What is the situation for an ongoing service fee or an ad-hoc fee? 23 Fee options and trusts 23 Discretionary trust (settler included) 24 Trusts created as part of setting up the bond for Old Mutual International trusts or external equivalent trusts 24 Existing trusts investing into an Old Mutual International bond 25 How fees are deducted from a bond 25 2

3 INTRODUCTION Old Mutual International Isle of Man Limited and Old Mutual International Ireland dac referred to as Old Mutual International in this brochure are premier providers of offshore savings products and market-leading solutions for investors all over the world. We are part of the Old Mutual Group, a FTSE 100 company founded in 1845 It is now one of the largest life assurance groups in Europe, with over 54,300 employees* in 33 countries and funds under management of over billion** We pride ourselves on our innovative and competitive products. We are committed to value, flexibility and exceptional service, and constantly seek ways to help your clients achieve their financial goals. Portfolio bonds can provide a wide range of benefits and are suitable for clients in many different circumstances. Old Mutual International has built an enviable reputation for technical excellence in international investment solutions and is on hand to help with complex scenarios. We offer a range of portfolio bonds, suitable for different types of clients. This guide focuses on our three RDR-compliant bonds for your UK retail clients***. It explains each of the bonds specific features and demonstrates how you and your client could benefit from choosing Old Mutual International. If you have any queries after reading this brochure, please contact us. * Source: Old Mutual as at 31 December 2012 **Source: Old Mutual as at 31 December 2015 *** As defined by COBS

4 choosing the right bond for each individual client Our portfolio bonds are suitable for the following types of client: Individuals Trustees Corporate Individual UK tax residents. Individuals expecting to move to the UK. Trusts where the settlor is alive and a UK tax resident or, for UK trustees, where the settlor is deceased. UK companies that would prefer not to invest in stocks and shares. Pension trustees QNUPS trustees whose members may be UK tax resident. Please note: this table gives only a broad overview. Actual individual cases may need different treatment and in some circumstances may not be acceptable to us. Please speak to your Old Mutual International consultant for more information. 4

5 Whole of life or redemption? Description Whole of life Whole of life, life assurance policies are available on a single, joint or multiple lives assured last death basis. Old Mutual International will calculate a death benefit of 101% of the surrender value of the bond on the Working Day after the Working Day we are notified of the death of the last life assured. We will pay the death benefit once we have received all documentation necessary to process the death claim. The bond will then end. Redemption Capital redemption bonds generally attract similar tax treatment to life assurance policies. They have no life assurance cover; they have a guaranteed maturity value as opposed to a death benefit. So, instead of ending on the death of a named person (the life assured), a capital redemption bond will continue for 99 years unless it is totally surrendered before the maturity date. If a policy is still in force after 99 years we will pay the greater of: A guaranteed maturity value of twice the premium paid less a percentage which is calculated based on the amount of withdrawals taken from the bond in relation to the bond value, or The surrender value on the maturity date. This will be paid to the policyholder at that time. The fact that it can continue after the death of the original policyholder(s) makes it a particularly attractive option for trustee investors as part of estate planning. The choice will often depend upon a client s individual circumstances and where they reside. This is because in some jurisdictions it may be beneficial from a tax perspective for a client to hold a life assurance policy, whereas in other countries a capital redemption policy may be preferable as it is sometimes classified as an investment product. Which jurisdiction? We offer two jurisdictions, the Isle of Man and Ireland. This means you can select the most appropriate solution for your clients individual circumstances. Life or redemption Jurisdiction International Portfolio Bond Life Life Isle of Man International Portfolio Bond Redemption Redemption Isle of Man European Portfolio Bond Life Life Ireland 5

6 PORTFOLIO BONDS AT A GLANCE Name International Portfolio Bond Life International Portfolio Bond Redemption European Portfolio Bond Life Applicant Available to investors aged between 18 and 89 (inclusive) Jurisdiction of insurer Isle of Man Isle of Man Ireland Currency Choice of 13 major currencies Term Whole life 99 years Whole life Death benefit 101% of surrender value n/a 101% of surrender value Lives assured Available on a single, joint or multiple lives assured last death basis n/a Available on a single, joint or multiple lives assured last death basis Maturity value n/a If a policy is still in force after 99 years we will pay the greater of: a guaranteed maturity value of twice the premium paid less a percentage which is calculated based on the amount of withdrawals taken from the bond in relation to the bond value, or the surrender value on the maturity date. n/a Investment choice Minimum additional premiums Investment choice In-specie transfers Access to capital Online functionality Authorised custodian Fund adviser and/or discretionary asset manager Adviser charging Trusts Max age life assured and applicant Extensive choice of collective investment funds and unit trusts, plus bank deposits. 2,500, US$3,750, 3,750 or currency equivalent. Extensive choice of collective investment funds and unit trusts, plus bank deposits. Your client can transfer in and consolidate acceptable fund holdings. Clients can take money out of a bond by surrendering all or some of the individual policies held or by taking partial surrenders across all policies. There is also the option to take partial surrenders as regular withdrawals. All portfolio bonds for individual retail clients are powered by Wealth Interactive, our innovative end-to-end wealth management service. It s a fast and convenient way for clients to view and monitor their Old Mutual International portfolio bond products online, and allows you to manage your Old Mutual International portfolio bond business easily and efficiently. Clients can appoint up to three authorised custodians to hold assets linked to their portfolio bond or alternatively some of the assets can be held by an authorised custodian and some held by our default custodian. Please note the minimum investment amount per authorised custodian is 50,000 or currency equivalent. Clients can appoint a fund adviser and/or request that we appoint a discretionary asset manager to manage the assets linked to their bond. If they choose more than one custodian, then an appointment can be made for each custodian. Facilitation of a wide range of Adviser Fees to suit your client s circumstances. Comprehensive range of trusts for estate planning and asset protection. 89 Min age applicant 18 Min age life assured Rebates Payment 3 months 100% of asset rebates we receive will be credited to the client s transaction account. Electronic transfer. 6

7 MINIMUM CURRENCY AMOUNTS Choice of currencies Your client can choose any one of the 13 major currencies shown below to value their portfolio in (also called the bond currency ). However, they are not limited to investments based in that currency. They can also choose to make payments or withdrawals in other currencies if they wish. Please be aware that there may be costs involved in the conversion of currency and these will be passed on to the client. Minimum amount needed for Currency Initial premium Extra investment Minimum asset investment amount* One-off withdrawal Minimum regular withdrawal payment** Maintaining a portfolio fund linked to a bond UK sterling 25,000 2, ,000 Euro US dollar Australian dollar Canadian dollar Singapore dollar Swiss franc 37,500 3, ,000 50,000 5, ,000 Hong Kong dollar 300,000 30,000 4,800 4,800 4, ,000 Danish krone 250,000 25,000 4,000 4,000 4, ,000 Japan yen 5,000, ,000 80,000 80,000 80,000 2,000,000 Norwegian krone 250,000 25,000 4,000 4,000 4, ,000 New Zealand dollar 62,500 6,250 1,000 1,000 1,000 25,000 Swedish krona 300,000 30,000 4,800 4,800 4, ,000 *Also the minimum deal amount. If an asset provider has a higher minimum, this will prevail. ** Withdrawals can be taken monthly, bi-monthly, quarterly, termly (4-monthly), half yearly or yearly. These minimum amounts may increase in the future, so please check the latest figures with your Old Mutual International Consultant. A summary of the Adviser Charging facilitation options and Old Mutual International s charges can be found in Fees and Charges on page 20. 7

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9 making life easier for you and your clients Powered by Wealth Interactive Wealth Interactive is our innovative end-to-end wealth management service that will transform the way we work with financial advisers and our customers worldwide. Wealth Interactive represents a fundamental re-engineering of our offshore service offering. Its interactive extranet will make it much easier and more convenient for you to do offshore business with us. It offers a full suite of online services for client administration, investment and business management, together with a client extranet that will enable your offshore clients to feel more empowered because they are able to keep track of their wealth. This new engine powering our portfolio bonds will offer faster response times, raised productivity and enable us to be much more pro-active. It will help you to show your clients that you are providing a clear, transparent, efficient service that s excellent value for money. The quality and depth of the information on Wealth Interactive should impress your clients, allowing you to set a fair fee for your advice. For more information on Wealth Interactive and the services it provides, please see Introducing Wealth Interactive, available from your regional Old Mutual International office. 9

10 Some of the services available through Wealth Interactive include: Client administration and management New business and additional premium applications for individual and corporate investors Transaction history Valuations customer documentation library Pre-sale and existing business illustrations Alerts Investment management Asset research Dealing risk profiling and asset allocation tools Portfolio building Portfolio and fund x-ray reporting Business management Customisable dashboard Self management of firm s users Remuneration statements Firm documentation Giving you and your clients control Transaction account management At outset and during the life of the policy, your client is able to select an asset (Charge Deduction Asset CDA ) which will be used to clear any negative balance in the transaction account held with us. They must specify which asset to use; it will not be possible to request that the largest value asset at the time is used. Your client can however change this asset at any time. If a CDA is selected we will use it as follows: To clear a negative balance, we will first use any uncommitted cash in the transaction account. If there is no cash or the negative balance remains outstanding after using available cash, we will automatically realise an equivalent value from the CDA. If any negative balance remains outstanding after the investment in the asset has been totally exhausted we will carry the outstanding amount through to the next quarterly charge run and request that a new asset is selected. if no CDA is selected or available we will revert to the process described below. We will not instruct a trade in the CDA if any negative balance is below our minimums; this is the same as the minimum asset deal size if your client or the fund adviser sells the asset which is specified as the CDA, we will ask for a new asset to be nominated We will issue an if the CDA value slips below the previous quarterly charge amount. This alert will only be triggered after the quarterly charge run has resulted in a sale that reduces the value of the asset or when a surrender occurs we will not track daily moves in the asset value. If no CDA is selected or available we will clear any negative balance using the following process: We reserve the right, on giving 30 days notice in writing, to sell holdings to repay the negative balance. Such a sale will be made: firstly, by using uncommitted cash in all transaction accounts we suggest 5% of the premiums invested is held in liquid assets. if there is no cash or the negative balance remains after all cash has been used, we will give your client 30 days notice to provide instructions on how to clear the balance if no instruction is given we will sell from instant access or short notice bank deposits first If there is insufficient cash there or no such bank deposits are held, then we will normally sell assets which have the highest value at the last valuation date. Please note a CDA can not be selected if an authorised custodian has been appointed to hold the clients assets. Regular withdrawals Your client can also select one or more assets to fund withdrawals. See page 19 for more details. 10

11 a choice of investment opportunities Our portfolio bonds offer your clients a selection of UK tax-compliant investments This includes external collective investment funds, unit trusts or bank deposits agreed by Old Mutual International. All the investments available through the portfolio bond are within the personal portfolio bond (PPB) legislation and are compliant with UK income tax legislation. We try to offer the widest possible range of assets for your clients to choose from. However, there are some asset classes which cannot be held within our portfolio bonds, including derivatives, commodities, real estate, property, precious metal or coins, and works of art. These restrictions are for regulatory reasons rather than risk or potential performance. Transferring and consolidating existing assets To help reduce dealing costs and save your own and your clients time, investors can transfer existing fund holdings or assets into their portfolio bond, subject to our acceptance. This can normally be by in-specie transfer, so assets will be transferred into Old Mutual International s name rather than being bought and sold, saving on stockbroking fees. This transaction could lead to a capital gains tax liability, if applicable to the client in the country where they reside, for any gains on the assets transferred. In-specie transfers are subject to our approval. The minimum initial investment rises from 25,000 to 50,000, or currency equivalent if your client wishes to include in-specie transfers. Negotiating discounts Thanks to over 20 years experience, we have some of the longest-established relationships with fund managers and stockbrokers. This means that, on some assets, we can negotiate discounts (on initial fund charges, for example) and pass the savings on to your clients so they can invest more of their money for a higher level of potential growth. Case study: Jean Jean was becoming overwhelmed with all the paperwork that accompanied her investment portfolio. She was also concerned about the increasing UK capital gains tax liability when adjusting her expanding portfolio. By moving these assets into a portfolio bond she now has a consolidated report, and all information is available on Wealth Interactive for her to review. With no annual tax reporting required on the assets, there is also less work for her accountant until she starts to withdraw benefits especially as further portfolio adjustments would not be subject to capital gains tax in the UK. Please note however, that moving her investment portfolio within the portfolio bond would be a disposal for UK capital gains tax. Please note: this case study is fictional and used purely to illustrate a possible real-life scenario. 11

12 Investment risks As already detailed, portfolio bonds offer a very wide choice of investments, which brings many benefits but also a number of risks. Some of the more common risks are detailed below, but please note that this is not an exhaustive list All underlying investments held in Old Mutual International s portfolio bonds are owned by Old Mutual International, and as a result all rights relating to these funds and assets belong to Old Mutual International. Unless specifically providing some form of guarantee, Old Mutual International will accept no responsibility for the performance of an underlying investment. The value of the bond will be directly linked to the investment performance of the chosen bank deposits and investments, generally managed by third parties such as banks and fund managers. As a result, all investment risk rests solely with the client. With all assets being owned by Old Mutual International, any compensation arrangements will relate only to Old Mutual International s aggregated holdings across all affected policies rather than to individual investors. In the event that the provider of an asset (including bank deposits) fails, compensation will depend on where that provider is registered. Therefore, if protection of the investment is the client s primary objective, they will need to consider the appropriate diversification of their investments to reduce risk. Investing through Old Mutual International, as a corporate investor, opens up access to professional and non-retail investment schemes. These may have a high minimum deal or dealing amount and restricted access as well as possibly entailing a greater level of risk. Clients should be given the opportunity to read the relevant documentation and it s important that they understand this. As investments are held in Old Mutual International s name, any disclosure documentation from the investment will generally be sent to Old Mutual International and not to the end client. You should therefore ensure that any local regulatory disclosure requirements are still met, by providing your client with the necessary information. Some assets may restrict access and/or have irregular dealing and/or pricing cycles. This may make it difficult to realise these investments, cause delays and/or result in your client losing some or all of their investment. A wide choice of currencies is available, so assets may go up and down simply as a result of currency movements. 12

13 making the most of tax opportunities These pages summarise some of the tax advantages for current UK tax residents and clients who are likely to become UK tax residents. For more details and technical information visit our Informer website at or simply ask your Old Mutual International consultant. Case study: Tom After years of careful retirement planning, Tom was annoyed to find that UK pension legislation changes had severely restricted the tax efficiency of his contribution levels and total fund value. Having built up a large fund he now had little additional flexibility within these new rules. Because Tom is resident in the UK, his financial adviser recommended a Qualifying Non-UK Pension Scheme (QNUPS) to supplement his current pension provision, with an International Portfolio Bond (IPB) as the underlying investment. His additional contributions to the QNUPS did not attract tax relief in the same way as those to his UK pension which exceeded the tax relieved limit, but he found he preferred the unlimited contribution and fund limits for the QNUPS. He also liked the investment flexibility from the IPB, as well as the convenience of viewing all the underlying assets in one place on Wealth Interactive. Please note: this case study is fictional and used purely to illustrate a possible real-life scenario. 13

14 making the most of tax opportunities (continued) Benefits for UK residents Gross roll-up/life fund taxation Under current Isle of Man and Irish legislation, Old Mutual International enjoys tax exemption in respect of the bondholder s funds. Investments within the bond can therefore grow virtually free of income tax and capital gains tax (CGT), although there may be some withholding tax payable within the life fund. Your client can buy and sell assets within the bond without creating any immediate tax liability. Tax-efficient withdrawals Partial surrenders Each year, up to a maximum of 20 years, your client can withdraw up to 5% of their initial premium (plus any additional premiums from the year when they are added), without any immediate UK tax charge. Any unused withdrawals can be rolled forward so, for example, 4% could be taken each year for 25 years. Total surrenders of individual policies Due to the way portfolio bonds are designed, it is possible to take a withdrawal by fully surrendering individual policies. It may be more tax efficient to take a full surrender of individual policies in certain circumstances. See our article UK taxation of offshore bonds Part I chargeable events on the Old Mutual International Informer website: Some ways to reduce your client s tax liability Top slicing When your client surrenders their bond, due to the chargeable gain, your client may become either a higher rate or additional rate tax payer. This relief allows your client to assess their gain across the number of complete years the bond has been in force. This can reduce or remove their liability to a higher or additional rate of tax. Gift assignment There is no UK income or capital gains tax charge on the assignor. All future UK income tax (if any) will be charged at the new owner s tax rate. Time apportionment relief If your client spends part of the time living outside the UK, any UK tax will be reduced according to the time they ve spent abroad. If they add to their bond with top-ups, once the client is resident in the UK again, these additional investments are deemed to have been made at the start of the contract. This increases any time apportionment relief. Flexible policy clusters Clients policies are all set up with a default cluster of 12 policies. However this can be increased or decreased when applying for the policy initially, subject to the minimum cluster value of 400. For example, if the investment amount is 40,000 the cluster size could be up to 100. This gives your clients extra flexibility: for example, when it comes to setting up assignments or when the client wants to take money out but has already used their 5% tax-deferred withdrawal allowance. Assignments Our portfolio bonds give your clients important flexibility when it comes to assigning parts of their policy to another person or party (the assignee). The portfolio bonds are made up of a cluster of policies. By assigning some of the policies within the portfolio bond, your client will only keep ownership of, and have access to details for, the cluster of policies of the portfolio bond that they do not assign. Any future transactions, such as dealing, submitted by the client will only apply to the policies that the client owns. The same will be true for the assignee, who can only request transactions relating to the policies of the portfolio bond that they now own. Assignees will receive a new bond number for the purpose of administering their assigned policies in the original portfolio bond, and will be set up with their own online Wealth Interactive account and access to their policies. The assignee then has control of these policies and can manage them independently. They can: select their own investment strategy select their own withdrawal strategy manage policies independently, e.g. assign their policies to other parties. 14

15 Benefits of using a trust Placing a bond in trust can: reduce or eliminate UK IHT liabilities simplify probate assist with generation planning, especially in situations where there are complicated family structures provide asset protection benefits. It also offers other advantages. Here are some examples. Terminating a policy is a taxable event. Choosing a capital redemption bond (e.g. the International Portfolio Bond Redemption) may be sensible as the bond does not end on death; alternatively, multiple lives assured could be selected if you want to use a whole of life bond Trustees can take withdrawals in order to make payments to beneficiaries Provided any withdrawals are within the 5% tax-deferred allowance, there is no immediate tax liability for up to 20 years. With greater taxation and increasing responsibility being placed on trustees, a portfolio bond has the benefit of giving trustees access to a wide investment universe, plus the convenience of regular reporting. Because they can manage the timing of any tax liability and assign benefits to beneficiaries, trustees can minimise the trust s tax liability. Case study: Jessica Jessica is looking to wind down as she reaches retirement and has recently sold a portion of her firm. She is worried about UK Inheritance Tax (IHT) and so has chosen to invest the proceeds in a loan trust. The trustees have invested the money in an International Portfolio Bond-Life. This has the benefit of capping Jessica s IHT liability on this investment, with any growth being outside her estate and not subject to IHT. Jessica was worried to learn that a close friend had lost his personal savings when his company failed. She was therefore pleased to learn that a possible added benefit of a trust is that this may offer some protection if her business gets into financial difficulty. This could apply to any investment growth but the remaining loan amount will still be Jessica s and therefore subject to creditors. She can also keep up to date with the performance of her bond using Wealth Interactive. Please note: this case study is fictional and used purely to illustrate a possible real-life scenario. 15

16 making the most of tax opportunities (continued) Case study: waste management company A waste management firm was required to hold a substantial investment in reserve for ten years in case of a claim against them. Worried about current low interest rates and the long-term impact of tax on the interest, they wanted access to institutional accounts and greater tax control, so their financial adviser recommended an offshore bond specifically the International Portfolio Bond Redemption as they are a corporate investor based in the UK and they do not want to invest in direct equities. Please note: this case study is fictional and used purely to illustrate a possible real-life scenario. Case study: Mr Singh Mr Singh has received a substantial inheritance and is keen that it should be used to fund his children s university fees and living expenses tax efficiently. He places it in an offshore bond and then assigns individual policies year on year to his non-tax paying adult children so that they will be surrendered tax efficiently and fund their university costs each year. His financial adviser recommends an International Portfolio Bond Redemption as Mr Singh is based in the UK and the bond will not end if he dies before his children have finished their education. He can also keep track of his bond on Wealth Interactive. Please note: this case study is fictional and used purely to illustrate a possible real-life scenario. 16

17 This information is not intended to offer advice. It is based on our interpretation of the relevant law and is correct at the date of printing. While we believe this interpretation to be correct, we cannot guarantee it. We cannot accept any responsibility for any action taken or not taken as a result of the information contained in this brochure. We strongly recommend that you seek clarity from HMRC on individual cases. 17

18 A wider world of wealth management opportunities We appreciate that your time is precious and it can be a struggle to achieve everything you need to do. We know it can be hard to create the right balance between dedicating enough time to your clients and finding opportunities to research fund managers or keep abreast of all the different funds available in the investment universe. With our portfolio bonds, you can share some of this responsibility by encouraging your clients to appoint a fund adviser, discretionary asset manager and/or authorised custodian. Appointing a discretionary fund manager and/or discretionary asset manager A fund adviser authorised for discretionary investment management or a discretionary asset manager will have the necessary time and in-depth knowledge to structure, design and monitor a client s investment portfolio. Please note your clients can only request that we appoint a discretionary asset manager (subject to our agreement) to manage the assets held by an authorised custodian. This option is not available if the assets are held by our default custodian. Choosing an authorised custodian Your clients may already have satisfactory custodial arrangements. If so, they may be able to keep their existing arrangements and hold their assets within their new portfolio bond the assets will, however, have to be re-registered. If a client wishes to continue using their existing custodian, we will first review the firm and advise accordingly. Your clients can appoint up to three authorised custodians to hold the assets or alternatively they can hold some of the assets with an authorised custodian and some of the assets with our default custodian. Through this facility, your clients or the fund adviser and/or discretionary asset manager can issue dealing instructions directly to the authorised custodian(s), who will implement them and hold the assets on our behalf. The fund adviser and/or discretionary asset manager and the authorised custodian can be associated, or even be part of the same firm or they may be completely independent of each other. Case study: Judith and Toby Judith and Toby are currently UK resident, but are planning to move to Belgium. Both have children from their first marriages and are concerned about the impact of UK inheritance tax (IHT). They decide to use an offshore bond combined with a loan trust to cap their potential IHT liability. Their financial adviser recommends a European Portfolio Bond-Life with the loan trust because, although they are planning to move to Belgium, they are UK domiciled. Judith and Toby are both trustees, and Judith has been appointed as the lead policyholder, which means she can view and manage the EPB on behalf of all the trustees on Wealth Interactive. Please note: this case study is fictional and used purely to illustrate a possible real-life scenario. 18

19 a choice of trusts Our portfolio bonds are particularly suitable for holding within a trust With your help, your clients can choose the most suitable trust from our selection of standard trusts available for Old Mutual International and Old Mutual International Ireland: Discretionary trust (settlor included) can be used as an excluded property trust Discretionary trust (settlor excluded) Absolute trust Discounted gift trust (bare version) Discounted gift trust (discretionary version) Loan trust (bare version) Loan trust (discretionary version) With our sister company, Old Mutual International Trust Company which offers an independent trustee service where the underlying investment is an Old Mutual International Bond we provide a wide range of trusts for international investors which are similar to the standard trusts on offer. Old Mutual International clients can complement their trust with our professional trust service, which offers extremely good value for money. For more information about our range of trusts, visit or ask your local Old Mutual International office for copies of: A guide to trusts by Old Mutual Trust Company A guide to trusts for international investors. Case study: Juanita Juanita, who is a non-uk domicile, is moving with her husband Tom, a UK domicile, to the UK to set up home. She is concerned about the high rates of UK tax which may affect her. She decides that by placing a portion of her overseas wealth in an offshore bond and setting up an excluded property trust she can avoid this money being subject to UK IHT. She wants to appoint a Trust Company to act impartially and professionally as trustee. Her financial adviser recommends an International Portfolio Bond Redemption with Old Mutual International Trust Company as trustee for the excluded property trust, because this offers the most tax-efficient solution and the bond will not come to an end in the event of her death, allowing greater time for efficient estate planning with peace of mind that the trust will be administered impartially and professionally even after her death. Old Mutual International Trust Company can use Wealth Interactive to provide reports to Juanita on the performance of the trust assets. Please note: this case study is fictional and used purely to illustrate a possible real-life scenario. 19

20 giving your clients easy access to their capital Total surrender of individual policies or one-off part surrender Our portfolio bonds are issued as a cluster of identical policies. Investors can access their capital by surrendering these policies either partially or one or more totally. This is subject to a combined minimum surrender of 400 (or currency equivalent, as shown in the at a glance section). The withdrawal can be taken in any of the 13 available currencies (subject to any currency conversion charges if money is not already available in this currency). One-off and regular withdrawals are available as long as the bond has a surrender value of at least 10,000 (or currency equivalent, as shown in the at a glance section) after the payment. Please note: we may decline a part surrender request (or limit the amount available) if it meant that the value of units left in the bond would fall below the minimum 10,000. This applies whether the fall is due to withdrawals or investment performance. We may change these minimum levels in the future. We must receive instructions on which asset to sell and will only pay out the requested amount upon receipt of the proceeds from the sale of the asset(s). Regular withdrawals Policyholders can also arrange regular withdrawals from their bonds to provide them with a stream of regular payments, either yearly, half-yearly, quarterly, termly (4-monthly), bi-monthly or monthly subject to a minimum withdrawal of 400 (or currency equivalent, as shown in the at a glance section) per frequency. Regular withdrawals will be made by debiting the amount from the transaction account held with us on the regular withdrawal due date. Nominated asset(s) It is your clients responsibility to make sure money is readily available to meet their regular withdrawals. They must nominate one or more assets which we will sell to clear the sums we debit from this account. This is known as the nominated asset. Your client needs to nominate this asset when they set up their regular withdrawals, but they can change it at any time. This gives them control over how we fund their regular withdrawals. If they do not select a nominated asset, they must keep enough cash in their transaction account to cover their withdrawals. Alternatively, if your client has chosen to appoint one or more authorised custodians, your client may also ask us (subject to our agreement) for the authorised custodian to pay the regular withdrawals on Old Mutual International s behalf. If your client does not request this, or we do not agree to such a request, Old Mutual International will pay the regular withdrawals to your client. Your client may also select which authorised custodian we should be receiving funds from to pay the regular withdrawals to them. Where regular withdrawals will be funded from assets held with our default custodian, your client must nominate an asset to be sold. The nominated asset may be the transaction account held with us for your policy. Please note that if we cannot sell a nominated asset, or where the nominated asset is the transaction account held with us, or the authorised custodian is to pay regular withdrawals on our behalf and there is insufficient credit in either the transaction account held with us or the authorised custodian s transaction account on the regular withdrawal due date, then the regular withdrawal will not be paid. Regular withdrawals will be reflected by cancelling units in the portfolio fund linked to their bond. This is a partial surrender of all the policies within the bond, in equal amounts. This will be reflected in your clients quarterly valuations. 20

21 Fees and charges Facilitating adviser fees Our portfolio bonds facilitate adviser fees. The range of adviser fees available depends on whether you are acting as your client s financial adviser and/or fund adviser. The fees to be paid are agreed between you and your client there are no maximum fee levels for facilitation. Please note if fees are facilitated from the bond and there is not sufficient credit or a nominated asset to fund the fee on the payment date, the fee will not be paid. Nominated Asset for Ongoing Fees Where some or all of the assets in your client s bond are held by our default custodian, you should ensure your client has chosen a Charge Deduction Asset as this asset will also be used as the Nominated Asset to fund Ongoing Fees to fund Ongoing Fees. For a financial adviser Financial Adviser fee facilitation options Initial advice fee* Ongoing service fee Ad-hoc adviser fee (i.e. one-off payment) When deducted Immediately before premium is invested Once the bond is accepted Quarterly On instruction Available on an initial single premium & top-ups 3* 3* N/A N/A As a specific amount As a % of premium paid As a % of total fund value Treated as a Fee Withdrawal Withdrawal Withdrawal * Not available on in-specie transfers or if the assets are held by an authorised custodian. Fund adviser Fund adviser fee facilitation options Fund adviser fee Ad-hoc adviser fee (i.e. one-off payment) Dealing advice fee When deducted Quarterly On instruction Quarterly As a specific amount As a yearly % of the value of assets held by the relevant custodian for which the fund adviser is appointed. This is paid quarterly in arrears Treated as a Withdrawal Withdrawal Withdrawal For additional information please see the sections on fund adviser fees (pages 21 and 22). For trust business, the above options differ. Please see pages for further details. 21

22 Fees and charges (continued) A choice of currencies Regardless of the currency in which the fee is deducted from the bond, you can nominate the currency in which we pay fees to your business. The amount of fee payable is converted to your chosen currency at the exchange rate applicable on the payment date. Please note that if your fees are payable in a currency which is different to that of the bond, your client would incur a currency conversion charge. The impact of adviser fees from the bond on clients 5% tax deferred withdrawal allowance When discussing with your client whether to take your fees from the bond, the following points may prove useful. The client is entitled to withdraw 5% of the premium paid to the bond for each year the bond is in force without incurring an immediate liability to UK income tax. The assessment of whether this tax deferred withdrawal allowance has been exceeded happens at the end of each bond year. If the allowance is not fully used in one year, it can be carried forward to use in future years. Where an initial fee is taken before the investment in the bond is made, this reduces the value of your client s annual 5% tax deferred withdrawal allowance. For example a 100,000 investment with 3% paid as an initial adviser fee means 97,000 is invested in the bond ( 100,000 less 3,000). The value of your client s annual 5% allowance is therefore 4,850 rather than the 5,000 it would have been if the whole 100,000 had been invested. Where an initial fee is taken after investment in the bond, this maximises the value of your client s annual 5% allowance however the fee is paid as a withdrawal which reduces the amount your client can take in the bond s first year if the 5% tax deferred withdrawal allowance is not to be exceeded. Using the example above, the client s 5% tax deferred withdrawal allowance is 5,000, which after deducting the 3,000 initial advice fee means the year 1 allowance remaining is 2,000. This means there is less taxdeferred withdrawal allowance available to your client for their withdrawals before they will incur a UK income tax tax liability. The payment of any ongoing fees (the ongoing service fee, dealing advice fee and fund adviser fee) together with the ad-hoc fee count towards the annual 5% tax deferred withdrawal allowance as they are paid as withdrawals. The value of an ongoing service fee is a percentage of portfolio fund value will, through investment growth, increase over time and therefore take more of a client s 5% tax deferred withdrawal allowance. A fund adviser dealing advice fee is a percentage of the purchase value of assets held by our default custodian for each qualifying purchase transaction. Authorising the agreed level of fees Your client authorises those fees they want us to facilitate as part of the application process: if your client applies online they will e-sign an electronic copy of the application including details of any fees we have been asked to facilitate Where the application is wholly paper, the fee authorisation form is part of the application that your client signs if you complete an online application on behalf of your client they will need to sign a paper copy of the Old Mutual International fee authorisation form, which you ll then upload to their online application before submitting it to Old Mutual International. In all cases, we ll reconfirm to your client the fees we have been asked to facilitate. At any time your client can ask us to set up or amend any of the available facilitation options as follows: initial fee this can be varied each time a top-up is made Other fees these can be varied at any time by the client sending us a completed fee authorisation form. Upon receipt of an instruction to amend or set up a fee, we will reconfirm the instruction to your client. Fund adviser fees Where a client appoints a fund adviser to manage their investment, the range of fees available to them depends upon the custodian who is holding the assets. If the custodian is Old Mutual International s normal appointed custodian (the default custodian), each of the fees described in the table on page 20 is available. If the custodian is external (an authorised custodian), the fund adviser can be paid both the fund adviser fee and an ad-hoc fee. Initial and ongoing fees when a top-up is invested We will need the client to authorise any initial advice fee associated with that top-up. For ongoing fees the client will need to authorise the level of fee to be paid from the existing investment as well as that payable from the top-up payment. If no authorisation is received for an existing fee this fee stops until such time as a new authorisation is received. VAT and adviser charging We treat all fees paid as being inclusive of any applicable VAT. This allows the receiving firm to determine the VAT treatment of that fee. What happens if a client returns a cancellation notice? If we receive a request to cancel, we ll return the amount to the client, net of any fees paid to an adviser. This means the payment for the advice given remains with the adviser and any refund of that fee is between the adviser and client. Please note: should a cancellation occur after an initial fee has been paid by part surrender from the bond, we will refund the premium* amount to the client net of that fee. This withdrawal will not be assessed as a chargeable event due to the client cancelling the policy. 22

23 Initial fees How an initial fee is paid Where the initial fee is to be paid before investment, we receive the full amount and after deducting the initial adviser fee we ll allocate the balance as the premium to the bond. For example, if the initial fee is 2,500 and the full investment is 125,000, the premium we ll invest in the bond is 122,500. If the initial fee is to be paid from the bond itself, we ll invest the full amount we receive as the premium for the bond and then deduct the fee as an immediate one-off withdrawal. Once the fee has been deducted, it is paid on the next date we are scheduled to pay fees to that business. * if there has been a fall in investment value it will be the residual investment value (less fee) that will be refunded. Ongoing fees These questions and answers cover the ongoing service fee, fund adviser fee. What happens if a client wants to change the level of ongoing fee? Ongoing fees can be varied at any time by the client sending us a completed fee authorisation form. Can a financial adviser change the level of an ongoing fee? No a financial adviser cannot instruct us to increase, decrease or stop the level of an ongoing fee. What level of ongoing fee is paid immediately following the bond s set up and on total surrender or maturity? The first payment of a percentage fee for ongoing service fee or fund adviser fee will be in proportion to the number of days the bond has been in force over a quarter. Where the fee is a fixed monetary fee the full amount is payable. Similarly when totally surrendered or the bond matures, the amount of a percentage fee for ongoing service fee and fund adviser fee is proportionate, whereas the fixed amount is paid in full. Facilitation options where the investment is an asset with a third party A client is advised to invest offshore but for the investment to be with a third party, for example a platform such as Old Mutual own or assets held by an authorised custodian. How can an initial advice fee be paid in this situation? The key thing to remember in this situation is that any fees need to be paid out of the offshore bond and not by the third party. This is because the client owns the bond but Old Mutual International owns the underlying assets. In which case, if your client s investment is in cash we can pay an initial advice fee before the bond is set up. However, that money must come to us for that fee to be paid. Once the bond is set up we ll transfer the amount, after any initial advice fee has been paid, to the third party. If the investment into your client s bond is part cash, part asset transfer, we ll pay any fee from the cash element as explained above. The fee cannot exceed the value of the cash received by us. If your client s investment is entirely made up of an asset transfer, we re not able to facilitate an initial adviser fee. However, once the assets are with the third party, your client can request a one-off withdrawal and, having received the money, pay you directly. What is the situation for an ongoing service fee or an ad-hoc fee? These fees still need to be paid out of the bond. We ll pay these fees as a withdrawal by debiting the bond s transaction account. It is your clients responsibility to make sure money is readily available to pay withdrawals. Please refer to page 9 for more information on transaction account management. Fee options and trusts Where the client (the settlor of the trust) receives advice from an adviser, they can only use the premium before it is invested to pay for this advice or they can use withdrawals from the bond while they own it. Once the bond is gifted into trust, it will be legally owned by the trustees. It s important for trusts that have been set up for inheritance tax mitigation, and where the settlor is not able to benefit, that withdrawals to pay for adviser charging are not taken if the advice has been provided to the settlor. The reason for this is that such an action may impact the IHT efficiency of the trust. However, if the trustees receive advice, then fees may be taken from the bond as a withdrawal. This too may mean potential income tax liabilities, or reducing the 5% tax-deferred withdrawal allowance. Where the settlor of the trust is UK resident and alive any chargeable event gain will be assessable on them. 23

24 Fees and charges (continued) When can fees be taken in relation to trusts offered by Old Mutual International? Discretionary trust (settlor excluded)/absolute trust/loan trust (discretionary & bare)/dgt (discretionary/bare) Where advice is provided to the Settlor: We will not facilitate adviser charging as this would be a gift with reservation of benefit for inheritance tax purposes. Where advice is provided to the Trustees: We would facilitate this* although chargeable event considerations as described above need to be considered. As does the fact that, for discretionary trusts, this may be considered a withdrawal from a discretionary trust and therefore IHT exit charges may apply. However, section 65(5) (a) Inheritance taxes Act 1984, states that no tax shall be charged in respect of a payment of costs or expenses, so far as those costs or expenses are fairly attributable to relevant property. It is generally held that legal or accountancy costs would fall within this and therefore it is our understanding that Advice fees would also and no IHT exit charge would apply. * for the Discounted Gift Trust, we are currently not able to facilitate where the request is made at outset. However, once the trust is declared, the trustees can request fees in respect of ongoing advice, investment management, or ad-hoc fees to be facilitated that they have agreed with the adviser Discretionary trust (settlor included) Where advice is provided to the settlor or trustees, we would facilitate this although chargeable event considerations as described above need to be considered, as does the fact that this would be considered a withdrawal from a discretionary trust and therefore IHT exit charges may apply. After reviewing these considerations in relation to their particular circumstances, should the settlor and/or trustees wish us to facilitate adviser charging for a bond subject to a trust, then the following facilitation of fee options are available from Old Mutual International. Trusts created as part of setting up the bond for Old Mutual International trusts or external equivalent trusts After reviewing these considerations in relation to their particular circumstances, should the settlor and/or trustees wish for us to facilitate adviser charging for a bond subject to a trust, then the following facilitation of fee options are available from Old Mutual International: you and your client there are no maximum fee levels for facilitation. Please note if fees are facilitated from the bond, if there is not sufficient credit or a nominated asset to fund the fee on the payment date, the fee will not be paid. Type of Trust Loan Trust/Enhanced Loan Trust (Bare or discretionary versions) Discounted Gift Trust (Bare or discretionary versions) Discretionary Trust (Settlor excluded) Discretionary Trust (Settlor included) Absolute Trust Best Start in Life Trust Advice given to, and request to facilitate fees received from the Settlor Type of fees that can be facilitated None Initial fee before premium is invested* Initial fee before premium is invested Initial fee before premium is invested Initial fee before premium is invested Initial fee before premium is invested Advice given to, and request to facilitate received from the trustees Type of fees that can be facilitated Ongoing Service Fee, Ad-hoc Fee, Fund Adviser Fee, Dealing Advice Fee Ongoing Service Fee**, Ad-hoc Fee**, Fund Adviser Fee**, Dealing Advice Fee** Initial fee from bond (for top-ups), Ongoing Service Fee**, Ad-hoc fee**, Fund Adviser Fee**, Dealing Advice Fee** Initial fee from bond (for top-ups), Ongoing Service Fee**, Ad-hoc fee**, Fund Adviser Fee**, Dealing Advice Fee** Initial fee from bond (for top-ups), Ongoing Service Fee**, Ad-hoc fee**, Fund Adviser Fee**, Dealing Advice Fee** Initial fee from bond (for top-ups), Ongoing Service Fee**, Ad-hoc fee**, Fund Adviser Fee**, Dealing Advice Fee** * The value of the discount is based on the value gifted into the trust. Therefore, if fees are facilitated before the trust is declared these will affect the discount and also the tax deferred withdrawal allowance available. ** Old Mutual International or Old Mutual International Ireland will not currently facilitate fees (other than initial fees taken from the premium payment before it is invested), where requested at outset. Once the trust is declared, the trustees can request such ongoing fees for ongoing advice or investment management service they are receiving and we will facilitate these fees. Please note that in respect of Old Mutual International trusts it is not possible for the settlor to reclaim income tax liabilities from the trust fund where they are excluded from benefitting from the trust fund. 24

25 Existing trusts investing into an Old Mutual International bond Type of Trust Loan Trust/Enhanced Loan Trust (Bare or discretionary versions) Discounted Gift Trust (Bare or discretionary versions) Discretionary Trust (Settlor excluded) Discretionary Trust (Settlor included) Advice given to, and request to facilitate fees received from the Settlor Type of fees that can be facilitated None None None None Advice given to, and request to facilitate received from the trustees Type of fees that can be facilitated Ongoing Service Fee, Ad-hoc Fee, Fund Adviser Fee, Dealing Advice Fee Ongoing Service Fee, Ad-hoc Fee, Fund Adviser Fee, Dealing Advice Fee Initial fee from bond (for top-ups), Ongoing Service Fee, Ad-hoc fee, Fund Adviser Fee, Dealing Advice Fee Initial fee from bond (for top-ups), Ongoing Service Fee, Ad-hoc fee, Fund Adviser Fee, Dealing Advice Fee Absolute Trust None Initial fee from bond (for top-ups), Ongoing Service Fee, Ad-hoc fee, Fund Adviser Fee, Dealing Advice Fee Best Start in Life Trust None Initial fee from bond (for top-ups), Ongoing Service Fee, Ad-hoc fee, Fund Adviser Fee, Dealing Advice Fee 25

26 Fees and charges (continued) Old Mutual International Trust Company trusts Please note that where Old Mutual International Trust Company is appointed as trustee for any of the trusts detailed in the table above, Old Mutual International Trust Company will not agree to facilitate advice fees from the trust fund (i.e. the bond). How fees are deducted from a bond How is money taken from a bond to meet the fees payable? Apart from an initial adviser fee paid before investment in a bond, all adviser fees and fund adviser fees are paid out as withdrawals from the bond. How is an initial fee paid after money is invested in the bond? When a portfolio bond is first set up, any premium paid to us (rather than a cash or asset transfer from the authorised custodian(s)) is multiplied by the allocation percentage relating to the chosen charging structure for the bond. This may reduce the amount to reflect an allocation percentage of less than 100% and is allocated to the bond s transaction account and then is either invested in line with the instruction given or remains there pending an asset dealing instruction or transfer on to an authorised custodian. The initial fee is taken as a part surrender from the amount in the transaction account before it is used to buy assets or transfer to one or more authorised custodians. What is the process for calculating a percentage-based ongoing fee? An ongoing service fee is calculated as an annual percentage of the value of assets in the portfolio fund. Therefore, a quarter of the annual percentage is applied to the value of the assets at the quarterly date. It is payable in arrears. If the ongoing fee is a fund adviser fee, then it is calculated as an annual percentage of the value of assets in the portfolio fund held by each custodian that the fund adviser is appointed to act on behalf of. Therefore, a quarter of the annual percentage is applied to the value of the relevant assets at the quarterly date. It is payable in arrears. If it is a dealing advice fee, it is a fixed percentage of all assets held by our default custodian which are purchased on the purchase date. These are aggregated and paid out in arrears at the next quarterly date. When are fees deducted? Initial fees after the premium is invested and ad-hoc fees are deducted as a one-off withdrawal at the time we are told to deduct that fee. All other fees (ongoing fees) are deducted quarterly. Where the assets are held by our default custodian, any charge deduction asset selected will also be used as the asset to fund ongoing fees. How is an ad-hoc fee paid? Ad-hoc fees need a client s instruction each time such a fee is to be paid. That instruction needs to contain a dealing instruction. What currencies are fees deducted in? An initial advice fee deducted as a percentage is taken in the premium currency. Similarly an initial advice fee deducted as a set amount is taken in the currency of the fee requested. All ongoing fees will be deducted in the bond currency. Ad-hoc fees can be deducted in any of the available bond currencies. Case study: Edward Edward regularly works away from the UK on generous long-term contracts. He is keen to use his wealth, which he has little opportunity to spend, to build up a fund which will effectively allow him to retire early. An offshore bond enables him to use his time spent outside the UK to reduce the tax on any gains. His financial adviser recommends a European Portfolio Bond as Edward intends to return to the UK and would like to appoint a fund adviser to run his investments. Wealth Interactive allows him to keep track of how his investments are performing, no matter where he is. Please note: this case study is fictional and used purely to illustrate a possible real-life scenario. 26

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