guide to your Old Mutual International

Transcription

1 guide to your Old Mutual International Trust Company Enhanced Loan Trust investments pensions

2 the Old Mutual International Trust Company Enhanced Loan Trust More and more people are finding themselves in the situation where the assets they leave behind on their death could be subject to inheritance tax The Old Mutual International Trust Company Enhanced Loan Trust is an effective way of retaining access to your capital whilst giving away entitlement to the growth which is not subject to UK inheritance tax. It also allows you to make future gifts of your capital, for the benefit of your beneficiaries. 2

3 how UK inheritance tax (IHT) could affect you When you die, the value of the assets you own your home, possessions, money and any investments you may have are collectively known as your estate. If the value of your estate amounts to more than your available nil-rate band (NRB) for IHT then 40% tax may be paid on the value of the estate that is over the NRB. On your death, your NRB can be increased by transferring any unused NRB, up to the value of two NRBs, from any previous spouse or civil partner* who predeceased you. Even if you are in a position to take advantage of an increased NRB, it could still leave a substantial portion of your estate exposed to IHT. So, whether your estate is currently worth more than the NRB, or you think it could be in the future, then you should consider some form of tax planning to mitigate the potential IHT liability and, in so doing, leave more of your estate available to your beneficiaries. IHT rules and regulations can be complicated just like some of the options for limiting any potential IHT liability. What may be an ideal tax planning arrangement for one person may be wholly inappropriate for another. That s why it is essential to seek professional advice in relation to your particular circumstances and requirements. *As defined by the Civil Partnership Act 2004 Throughout this brochure, wherever we want to explain a particular term or draw your attention to a potential risk, we have highlighted them in boxes like this on the page where the term is first used. Nil-rate band (NRB) NRB is the amount of your estate on which the IHT rate is zero. This is 325,000 for the tax year 2016/2017 (this is frozen until 2020/2021) and is generally increased by inflation each tax year. 3

4 how an Old Mutual International Trust Company Enhanced Loan Trust works The Enhanced Loan Trust gives you the flexibility to adapt to a future change of circumstances. You may want the security of retaining access to your capital now, however in the future you may find that you have sufficient money to support your day to day living and decide that you no longer require repayment of all or part of the loan The Enhanced Loan Trust gives you the opportunity to accommodate such a change of circumstances. You can make an interest-free loan, repayable on demand, to Old Mutual International Trust Company, your appointed trustees. The trustees use the loan to invest in an Old Mutual International - International Porfolio Bond with the intention of achieving long-term capital growth. The benefit is that growth on the loan that is invested in the Old Mutual International - International Portfolio Bond is protected from IHT when you die, although during your lifetime you still have access to the original loan, via repayments on request. There are two choices of trust - a discretionary trust and a bare trust: if you would rather identify your beneficiaries as a class of people, for example my grandchildren, then you may prefer a discretionary trust if you want to identify at the outset, and not change, which individuals are to benefit from the trust s proceeds, then a bare trust may be suitable. risk warning The Old Mutual International Enhanced Loan Trust limits the liability of the trustees to the value of the trust fund or the outstanding loan, whichever is lower. In the event that the trust fund falls in value you may not receive back the amount of the original loan. You can also complete a letter of wishes, addressed to the trustees, which allows you to confirm your intention and wishes for the money held within the trust. This can be used to give the trustees guidance on what you would like them to take into account when making future decisions about the trust. The letter of wishes is not legally binding on the trustees however as part of the regular review the trustees will ask if you wish to waive all or part of the outstanding loan. This is achieved simply by completing Old Mutual International Trust Company Loan Trust - Deed to Waive Loan. For IHT purposes, by completing the Deed to Waive Loan you will be making a potentially exempt transfer (PET) where the bare version is used or a chargeable lifetime transfer (CLT) where the discretionary version is used. Therefore, you should speak to your financial adviser to ensure you understand any potential IHT liability as a result of waiving your entitlement to all or part of the loan. Where you have waived part of the loan or there is sufficient growth to make advance payments, you could ask the trustees in a letter of wishes, to consider making payment to the beneficiaries. The value of the loan waived remains within the trust and under the control of the trustees. The trustees will have the discretion when to make these payments and the beneficiaries have no control over when the trust fund is distributed. bond choice Old Mutual International offers a choice of the Old Mutual International - International Portfolio Bond - Life or Old Mutual International - International Portfolio Bond - Redemption. Your financial adviser can recommend the best choice for you. potentially exempt transfer (PET) A gift made by an individual which is not immediately liable to IHT. It only becomes chargeable to IHT if the Settlor dies within seven years of making the gift. If the Settlor survives for seven years then the transfer is not subject to IHT. chargeable lifetime transfer (CLT) A gift to a discretionary trust is regarded as a chargeable lifetime transfer. This gift may be liable to IHT immediately if the amount (plus any gifts in the previous seven years) exceed the nil-rate band. The value of the gift will remain in your estate for IHT purposes for seven years from the date of the gift. 4

5 an Old Mutual International Trust Company Enhanced Loan Trust provides a flexible IHT solution The example below illustrates how the Old Mutual International Trust Company Enhanced Loan Trust works in practice A Loan of 1,000,000 is made to Old Mutual International Trust Company (the Trustees). The Trustees invest the loan in an Old Mutual International - International Portfolio Bond. The Trustees write to the Settlor as part of their regular review and ask if they wish to gift any part of the loan. What does this mean? Year one The Settlor wishes to utilise unused IHT annual allowance exemption and gift 6,000 of the loan. The Settlor can waive their entitlement to 6,000 of the loan by completing the Deed to Waive Loan. The 6,000 is an exempt gift for IHT purposes. The Settlor s outstanding loan is now 994,000. Year seven The Settlor is in a position to make a larger gift and gives away 325,000, the current NRB, of the unpaid loan because their financial circumstances have changed and they no longer require the capital. The Settlor can waive their entitlement to 325,000 of the loan by completing the Deed to Waive Loan. The Settlors outstanding loan is now 669,000. Year ten The Settlor requests that the trustees set up annual withdrawals from the bond as repayment of the loan. The Trustees complete a Portfolio Bond request for a withdrawal or surrender form requesting withdrawal to be paid annually to the Settlor. 5

6 an Old Mutual International Trust Company Enhanced Loan Trust makes life easier for you The following case study shows how the Old Mutual International Trust Company Enhanced Loan Trust works Mr Jacobs, aged 62, semi-retired business consultant, married twice, two children from first marriage, three from second, one grandchild. Assets House: 1.5 million london apartment: 350,000 (let to provide income) Savings and investments: 1.5 million Income in receipt of state pension and private pension. Mr Jacobs realises that although the value of his assets could expose his beneficiaries to a large IHT bill when he dies, maintaining his lifestyle means he cannot afford to give substantial amounts away. He also wants to ensure that the children from both his marriages are treated equally when he dies. Having considered Mr Jacobs needs, his financial adviser proposes a discretionary Old Mutual International Trust Company Enhanced Loan Trust. Because this does not oblige him to specify the names of his beneficiaries at the outset, it can be used, for example, to benefit any grandchildren as yet unborn. It also means that he can limit his potential IHT bill without giving up access to the original loan, which he may need in the future to supplement his income. Having chosen Old Mutual International Trust Company to act as trustees, Mr Jacobs makes a loan of 1 million to the trustees, who invest it in the Old Mutual International - International Portfolio Bond - Redemption. Mr Jacobs does not need access to the loan immediately so he leaves the trust assets untouched, knowing that any growth will now be outside his estate and cannot therefore be subject to IHT. However, as this is a discretionary trust he may suffer ongoing periodic and exit charges. More information relating to IHT and discretionary trust charges can be found in the Guide to your Old Mutual International Loan Trust (discretionary version), available from your financial adviser. 6

7 Mr Jacobs receives a regular review letter from the trustees asking if he wishes to gift any part of the loan. Mr Jacobs, after discussing this with his financial adviser, wants to waive 6,000 of the loan, this for IHT purposes is a gift. This amount equates to two year s annual IHT exemptions and therefore will be free from IHT. He also completes an Old Mutual International Trust Company Loan Trust - Deed to Waive Loan. A few years later, Mr Jacobs circumstances have changed from when the Enhanced Loan Trust was created. He now feels in a position to make outright gifts as part of his IHT planning following discussion with his financial adviser. Having assessed his need for repayment of the loan in the future and the need to mitigate his IHT liability, they decide to gift the value of the NRB ( 325, /2017). As this is already within the trust, other than completing the Deed to Waive, no further action needs to be taken. The underlying investment does not need to be changed or encashed. This is gifted to the trust, for the benefit of the beneficiaries, free from IHT. Depending on his financial circumstances at the time, Mr Jacobs could decide to gift the value of the NRB every seven years free from IHT, provided the total gifted amount to the trust and loan repayments do not exceed the value of the loan and no gifts have been made in the preceding seven years. In year ten, Mr Jacobs requests the trustees to make repayments of 50,000 annually, as repayment of the remainder of the loan. The withdrawals are classified as tax deferred withdrawals and are not immediately subject to UK income tax. When Mr Jacobs dies aged 80 the value of the outstanding loan is within his estate and therefore subject to IHT. Assuming Mr Jacobs has already used his NRB elsewhere Mr Jacobs Enhanced Loan Trust has saved his estate 292,400 in IHT, not including the growth on the loan invested in the Old Mutual International - International Portfolio Bond which is also free from IHT. Making payments from the trust Before making payments to beneficiaries, you should speak to your financial adviser in order to understand the effects of any potential income tax liability (and any IHT liability where you choose a discretionary version). Tax reliefs and tax treatment may change and the value of any reliefs will depend on the beneficiaries individual circumstances. repayments any loan repayments in excess of 5% a year of the original investment may be liable to income tax. 7

8 at a glance the benefits of IHT planning with an Old Mutual International Trust Company Enhanced Loan Trust: can provide long-term benefits for your beneficiaries, as any investment growth will not form part of your estate enables you to retain access to the original loan, though not any investment growth from that amount allows you to give all or part of your loan to the trust should your financial needs or personal circumstances change in the future allows you to benefit from efficient tax-deferred withdrawals old Mutual International Trust Company will be appointed as the trustees of the trust fund, taking into account your wishes, whilst considering the best interest of the beneficiaries provides access to an extensive range of funds via the Old Mutual International - International Portfolio Bond enables your trustees to distribute the trust fund, at anytime, to your beneficiaries. After you die the trustees can pay the proceeds to the beneficiaries without any need to wait for probate. * the Old Mutual International - International Portfolio Bond gives your trustees access to a wide range of Old Mutual International investment funds managed by world-leading fund managers. They also provide access to an extensive choice of externally managed collective investment funds. probate When someone dies, the executors or administrators of the deceased s estate apply to the court for authority to deal with the estate. This authority is called the grant of probate. risk warning: The investment is not guaranteed. It may fall as well as rise in value and you may not get back what you put in. 8

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10 Old Mutual International Trust Company experts you can trust Old Mutual International Trust Company is part of Old Mutual International and is based in the Isle of Man. It provides you with an independent trustee service, giving you peace of mind that the assets of the trust will be dealt with in a professional and unbiased manner Old Mutual International is a leading provider of financial solutions designed for both expatriate and local investors across the world. Our products and solutions are underpinned by a wide choice of investments and ways to monitor and manage them online, with the help of your financial adviser. We are part of Old Mutual Wealth Limited, a leading wealth management business in the UK and internationally with billion in assets under management (as at 30 June 2017). Their offering includes platform-based investments and protection, asset management solutions and discretionary management, as well as financial advice services in the UK and Singapore. Old Mutual International Trust Company offers an independent trustee service, which gives you peace of mind that the assets of the trust will be dealt with in a professional and unbiased manner, in accordance with your wishes. By appointing the Old Mutual International Trust Company you do not have the dilemma of who to select as personal trustees and you can be assured that your wishes will be considered, all decisions will remain objective and they will be kept in-line with the aims of the trusts. Old Mutual International Trust Company s trustee service does not include tax or investment advice. The advantages of using Old Mutual International Trust Company include the following. all trust paperwork will be dealt with professionally, so there is no need for a lay trustee to spend time understanding the terms of the trust and trust law when dealing with any paperwork. the trust assets will be held in an offshore location, which provides a number of tax advantages. old Mutual International Trust Company is based in the Isle of Man, so the trust assets are held in a well regulated, politically and legally stable offshore jurisdiction. The Isle of Man also has a comprehensive policyholder protection scheme. For information on the cost of appointing the Old Mutual International Trust Company please ask your financial adviser for the Old Mutual International Trust Company fee scale form. 10

11 important information This brochure is intended to introduce the concept of using an Old Mutual International Trust Company Enhanced Loan Trust to help reduce your IHT liability. You can find more detailed information in the Guide to your Old Mutual International loan trust (discretionary version) available from your financial adviser. However, trusts are complex and there are many legal and tax implications that can only be explained by a financial adviser. We strongly recommend that you seek professional help before entering into any trust arrangement. Your financial adviser will be able to give you more detailed information about: the benefits and suitability of IHT tax planning using an Old Mutual International Trust the advantages and potential risks associated with the Old Mutual International - International Portfolio Bond the wide range of investment funds available via the Old Mutual International - International Portfolio Bond the costs and charges involved in setting up and managing such an arrangement. The information in this document is based on Old Mutual International s interpretation of UK law and HM Revenue & Customs practice as at November While we believe this interpretation is correct, we cannot guarantee it. If you are subject to tax in any country outside of the UK, you should contact your financial adviser or tax specialist in the country concerned to understand whether you will be liable for tax in that country as well, as a result of receiving benefits from this plan. 11

12 Old Mutual International Trust Company PO Box 142, King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 3DJ, British Isles. Phone: +44 (0) Fax: +44 (0) Old Mutual International Isle of Man Limited is registered in the Isle of Man under number 24916C. Registered and Head Office: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. Phone: +44 (0) Fax: +44 (0) Licensed by the Isle Of Man Financial Services Authority. All promotional material is approved by Old Mutual Wealth Limited. Old Mutual Wealth Limited is authorised and regulated by the Financial Conduct Authority. Financial Services register number The rules made under the Financial Services and Markets Act 2000 (as amended) for the protection of retail clients in the UK do not apply. Old Mutual International Isle of Man Limited is a member of the Association of International Life Offices. Old Mutual International is registered in the Isle of Man as a business name of Old Mutual International Isle of Man Limited. Old Mutual International Trust Company Limited is registered in the Isle of Man under number C. Registered and Head Office: PO Box 142, King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 3DJ, British Isles. Phone: +44 (0) Fax: +44 (0) Licensed by the Isle Of Man Financial Services Authority. When printed by Old Mutual this item is produced on a mixed grade material, which uses a combination of recycled wood or paper fibre from controlled sources and virgin fibre sourced from well managed, sustainable forests. SK7836/INT /August 2017