This is just for UK advisers - it's not for use with clients. A creative approach to inheritance tax planning Prudence Inheritance Bond

Transcription

1 This is just for UK advisers - it's not for use with clients Adviser Guide A creative approach to inheritance tax planning Prudence Inheritance Bond

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3 Contents 1. Prudence Inheritance Bond a discounted gift plan with a difference 4 2. Bond structure the two plans 5 3. Bond structure the two funds 6 4. Income benefits 7 5. Benefits payable on death 8 6. Maturity benefits 8 7. Income tax 8 8. Income tax on withdrawals 9 9. Income tax on death Income tax at maturity Capital gains tax Surrender facility The discount Choice of trusts Absolute trust Discretionary trust Joint settlor trusts Do clients need to have a medical examination? Charges Minimum investment Life basis Age limits Adviser Charging Unit allocation Unit prices 15 A creative approach to inheritance tax planning 3

4 Prudence Inheritance Bond A creative solution to your client s inheritance tax dilemma how to gift capital while keeping access to the income generated by the capital. 1. Prudence Inheritance Bond (PIB) a discounted gift plan with a difference Launched in January 1997, PIB is a well-established plan designed with the aim of meeting the key requirements for effective inheritance tax (IHT) planning. In common with a standard discounted gift trust, capital is gifted into trust, while the client gets regular payments and the value of the gift may be immediately discounted for IHT purposes. So the plan provides: > the potential to reduce the prospective IHT liability immediately, > the facility for the client to take regular payments to help maintain their existing lifestyle, and > the opportunity for the gifted capital to grow. But PIB has been designed to do more than this. Its exceptional structure means that it offers three distinctive features. > A natural income stream: it pays the income naturally generated by the investment, so this will not eat into the beneficiaries inheritance. > Flexibility to take or save the natural income: any natural income not required can be reinvested for the future in a choice of funds and taken at any time. > Potential income tax benefits: it is unlikely to give rise to a chargeable event gain on death, which could mean a substantial saving. PIB received an updated Counsel's opinion in October Important information The tax information in this guide is based on Prudential's current understanding of current taxation, legislation and HMRC practice, all of which are liable to change and subject to an individual s own circumstances. Terms and conditions of products are available on request. The level of charges may change in the future. The value of an investment can go down as well as up and is not guaranteed. Your client could get back less than they have paid in. The asset mix of the Prudence Inheritance Bond Capital Fund is likely to vary in future. Full terms and conditions of the PIB are available from Prudential on request. Charges may vary in the future. 4 A creative approach to inheritance tax planning

5 Prudence Inheritance Bond Prudence Inheritance Bond Prudence Inheritance Bond Income Fund Endowment Plan maturity The maturity date is the policy anniversary after the life assured's 105th birthday. For joint life bonds the anniversary of the bond after the 105th birthday is based on the age of the following life: Whole of Life Plan Provides capital for the beneficiaries, potentially free of IHT Capital Units Fund Endowment Plan Income Units Fund > if both survive, it is based on the younger life; > if the younger life dies first it is based on the age of the survivor. If this happens when the older life is aged at least 105, the Endowment policy ends at the following anniversary. Provides distributions for the investor 2. Bond Structure the two plans The bond consists of two plans the Endowment Plan, which provides an income until your client dies or until maturity whichever comes first, and a Whole of Life Plan, which provides a capital sum on their death. > Your client keeps the Endowment Plan for their income needs. > Your client makes a gift of the Whole of Life Plan into a trust for their chosen beneficiaries, normally their children or grandchildren. They make the gift by signing a trust declaration form before the bond starts, so that the Whole of Life Plan is under trust from the moment the bond starts. A creative approach to inheritance tax planning 5

6 Prudence Inheritance Bond In the long run, the investment strategy aims to pay an income of between 4% and 4.5% after tax within the funds. 3. Bond Structure the two funds The fund to which an ordinary investment bond is linked consists of capital assets and the reinvested income from those assets. For PIB, a different system operates. All the capital assets are in one fund PIB Capital Fund. > September to November inclusive. The Income Fund unit price starts off at zero at the beginning of each three-month period and moves up gradually as more and more dividends and interest flow into it. Its unit price then returns to zero when the accumulated amount is paid out on the first of March, June, September and December. These payments from the Income Fund are credited to the Endowment Plan. The amount in the Income Fund at the end of each three-month period determines the amount paid out per unit. The number of Income Fund units allocated to the Endowment Plan when your client s bond starts determines how much is paid into the Endowment Plan at the end of each three-month period. All of the income those assets produce goes into another fund the PIB Income Fund. 3.1 The Prudence Inheritance Bond Capital Fund As with a conventional investment bond fund, the Capital Fund unit price will go up and down as the value of the assets in the fund goes up and down. However, as there will not be any income flowing into the Capital Fund, any upward movement will not be as much as an ordinary investment bond fund invested in the same spread of assets. 3.2 The Prudence Inheritance Bond Income Fund The Income Fund is simply a temporary home for the income produced by the assets in the Capital Fund during the course of a three-month period. They are: > December to February inclusive, > March to May inclusive, > June to August inclusive, and Normal Fund Investments Normal fund Invests in assets Dividends/ Income from assets Prudence Inheritance Bond Investments Prudence Inheritance Capital Fund Invests in assets Prudence Inheritance Income Fund Dividends/ Income from assets Income Any distributions built up in the Income Fund are transferred into the Endowment Plan every three-month period to be paid out or reinvested Q1 (December to February) Q2 (March to May) For illustration purposes only. Q3 (June to August) Q4 (September to November) 6 A creative approach to inheritance tax planning

7 Prudence Inheritance Bond 4. Income benefits Your client s Endowment Plan gives them natural income via the distributions going into the plan from the Income Fund at the end of each three months. Natural income is paid on 1 March, 1 June,1 September and 1 December. Although payments are issued by us on the 1st of the month, it may take a few days for the money to reach your client s bank account. Instead of taking all the natural income, the client has other options. this relates to when they pay their 1st or final dividend payment. The June distribution from the bond is generally higher than the other 3 monthly distributions as most UK and European companies pay their final dividends in the second quarter of the year. The distribution in March is typically the lowest distribution of the year as it reflects the fact that the level of income being experienced in the previous 3 months is also at its lowest. Any natural income left in the Endowment Plan can be redirected into a range of Prudential's investment-linked funds. For further details please see PIB Guide (INVS11288). When redirecting distributions or excess natural income, a maximum of three investment-linked funds can be chosen at any one time. Any redirected natural income can be withdrawn on demand or taken as regular payments of a fixed amount. > Your client can cap the natural income at 5% a year of the initial investment into the Endowment Plan (applied as 1.25% per three-month period). This ensures that the withdrawals, including any Ongoing Adviser Charges, will not give rise to a chargeable event while sufficient allowance remains in place under the 5% a year tax-deferred withdrawal rules. Any excess natural income will stay in the Endowment Plan. > Your client does not have to take the natural income. Any natural income not taken will stay in the Endowment Plan. Full distribution taken as natural income Prudence Inheritance Bond Income Fund Stream of distribution payments for the investor Distributions capped at the 5% tax-deferred withdrawal limit, with any excess redirected into fund(s) of investor s choice Full distribution redirected into fund(s) of investor s choice Each distribution we make from the bond reflects the income received from the underlying assets within the fund in the 3 months leading up to that distribution. The levels of income received in different 3 month periods will vary, depending on the pattern of dividends and interest payments received within the fund. This means the level of distributions we make will also vary. Companies have different reporting periods and A creative approach to inheritance tax planning 7

8 Prudence Inheritance Bond Your client may not need the natural income at the start of the plan but it is important to check this on a regular basis. On death anything in the endowment will be within your client's estate; if natural income is not taken the amount within the endowment could be sizeable. 5. Benefits payable on death 5.1 The Whole of Life Plan The amount your client s beneficiaries receive on death is not guaranteed and will depend on: > how much has been paid in, > how long the money has been invested, > our investment performance over the time the money has been invested, and > our charges. On your client s death, the Whole of Life Plan under their bond ends (if the bond was taken out on the lives of two people, it will end when both lives assured have died). At this point, we ll pay out the value of the units in the PIB Capital Fund. Your client s personal illustration shows how much your client and their beneficiaries could receive. 5.2 The Endowment Plan If your client dies before their Endowment Plan matures (see page 5), we'll pay out a death benefit of 100 plus the balance of any natural income waiting to be paid and the value of any natural income which has been re-directed. 6. Maturity benefits If the Endowment Plan matures, we will pay out: > an amount equal to the value of the Whole of Life Plan; and > the value of the Endowment Plan, which includes the balance of any natural income waiting to be paid and the value of any natural income which has been re-directed. This will form part of the investor s estate and does not affect the benefit paid under the Whole of Life Plan which will still be paid on death after the Endowment Plan matures. 7. Income tax We have structured the PIB to reduce the potential for income tax, notably on the death of the settlor. 99% of the client s total investment into the PIB is the premium for the Endowment Plan. The premium for the Whole of Life Plan is 1% of the client s total investment. For instance, if the client puts 100,000 into the bond as a whole, the premium for the Endowment Plan will be 99,000. In turn, the premium for the Whole of Life Plan will be 1,000. This is not relevant to IHT planning but it is useful for income tax planning. Prudential pays tax on income and capital gains accrued within its funds. HM Revenue & Customs (HMRC) regards payment of this tax as equivalent to clients having paid capital gains tax and basic rate income tax, so they have no personal liability to capital gains tax or basic rate income tax on any gains made from their bond. Clients who are and remain basic rate income taxpayers will also have no personal liability to income tax on gains made from their bond. This means that if a gain occurs under the Endowment Plan, a liability to income tax will arise for clients who are already higher or additional rate income taxpayers or where the gain from the Endowment Plan takes them into the higher or additional rate income tax position. Top slicing relief may reduce liability to income tax if a gain pushes your clients into a higher rate of income tax. A gain under the Endowment Plan may also affect entitlement to certain allowances and certain tax credits. The tax paid by Prudential is not reclaimable for clients who are non-taxpayers. 8 A creative approach to inheritance tax planning

9 Income tax 8. Income tax on withdrawals As with any bond, withdrawals, including any Ongoing Adviser Charges (OAC), of up to 5% of the premium can be taken each year without any immediate liability to income tax. This continues until an amount equivalent to the premium has been withdrawn (100%). However, the key difference for PIB is the 5% calculation is based on the premium into the Endowment Plan, not the total premium. For instance, for an investment of 100,000, the maximum amount which could be taken each year (including any Ongoing Adviser Charges) without an immediate liability to income tax would be 4,950. In the early years, the 5% a year tax-deferred allowance for the client s Endowment Plan may cover the payments from the Endowment Plan, even if all the distributions are taken. Any unused allowances in the early years can be carried forward to be used in later years when payments taken from the Endowment Plan may be more than in the early years. To ensure that the 5% limit is not exceeded, we can monitor the level of distributions, only capping the distribution, plus OAC, at 1.25% a quarter (equivalent to 5% a year). If this option is selected, any excess distribution payments are automatically redirected into funds selected by your client under the Endowment Plan. Unless we are instructed to the contrary, the cap of 1.25% a quarter will carry on even after the 5% tax deferred allowance ceases to be available. 9. Income tax on death The structure of the PIB provides a key benefit in terms of income tax payable on the death of your client, the settlor. 9.1 The Whole of Life Plan As with any bond, the client s death will be a chargeable event but there will be no gain on the Whole of Life Plan because the gain calculation rules on death ignore the lump sum the plan pays out on death. If the surrender value of the whole of life plan on the date of death exceeds the premium paid, there will be a chargeable event gain. As there is no surrender value, there is no gain, and therefore no income tax to pay on the client's death with regard to the whole of life plan. 9.2 The Endowment Plan As mentioned earlier, death is a chargeable event but whether there is a gain or not depends on whether the amount of natural income taken over the term of the plan exceeds the Endowment Plan premium. The calculation is as follows. A. The surrender value of the Endowment Plan on the date of death plus All previous withdrawals less B. The Endowment Plan premium plus Any previous gains on withdrawals Where A. B. gives an answer greater than zero, a gain is made. A creative approach to inheritance tax planning 9

10 Income tax 10. Income tax at maturity Your client may have to pay income tax if they survive until the maturity date of the Endowment Plan, see the Maturity benefits section on page 8 for more details, or if they transfer ownership of the Endowment Plan in return for money or something of value before the maturity date. 11. Capital gains tax PIB is a life assurance plan and will not give rise to any capital gains tax liability. 12. Surrender facility Due to the structure of the bond, neither the Whole of Life Plan nor the Endowment Plan has a surrender value and it is not possible to surrender either of them. It is possible to withdraw lump sums from the Endowment Plan but these can only be taken from the value of any natural income that has previously been redirected into funds held under that plan. 13. The discount As your client is entitled to regular payments of natural income, the value of the initial gift may be discounted for inheritance tax purposes. As a result, the potential tax liability on the estate may be immediately reduced when the trust is set up. The discounted value takes into account the value of the regular payments your client could expect to receive during the rest of their lifetime. This will depend primarily on age and state of health. The longer your client's life expectancy, the more payments they could expect to get, so the discounted value of the gift is likely to be smaller. On the other hand, if they are in poor health at the start, the value may not be discounted by very much and there could even be no discount at all. If the trust is set up jointly with a spouse or civil partner, the total discount will be apportioned between them according to each person's age, state of health and so on. The discount is used to determine the value of the gift for any inheritance tax charges that may arise (see sections 15 and 16). We will normally give an indication of the value when the bond is set up, based on medical evidence we will obtain from the client's doctor. The actual amount will be decided by HMRC if or when a charge arises, but the indication we give may help in any negotiations. 14. Choice of trusts PIB offers a choice of either an absolute or discretionary trust, so your client can select which better suits their circumstances. 15. Absolute trust > Your client's transfer of value using an absolute Trust is a Potentially Exempt Transfer (PET). > Your client cannot change the beneficiaries or their share of the trust fund after the trust has been set up. If your client might want to make changes in future, perhaps because family circumstances may change, they may wish to consider a discretionary trust. > If a beneficiary of the trust dies, the value of their share of the trust will be part of their estate for IHT purposes. > Although there are no reporting requirements when using an absolute trust, it is important to ensure that a record is kept of any gift (and any discount) in case your client should die within seven years of establishing the trust. To set up PIB with an absolute trust, your client should complete the PIB Application (Form 1) and the PIB Absolute Trust Declaration (Form 2). 10 A creative approach to inheritance tax planning

11 Income tax 15.1 IHT Survival for seven years > The date of the gift is the date the bond starts. > Provided your client is still alive seven years later, the PET will then become an Exempt Transfer and the value of the gift (plus any capital growth) will be outside the client s estate IHT Death within seven years > If your client dies within seven years the PET will then become a Chargeable Transfer. > In that event, the value of the transfer will be calculated based on the date the gift was made the date the bond started. > The value is calculated by comparing: what the client had immediately before the gift was made, and what the client has immediately after the gift (i.e. the income from the Endowment Plan). Take the example of a client who is aged 70 next birthday, who puts 100,000 into a PIB as a whole. The premium for the Endowment Plan is 99,000 and for the Whole of Life Plan, 1,000. In this example, the client is in good health but dies within seven years of taking out the bond. Before the gift is made the client has 100,000 and, immediately after, the Endowment Plan. The key question for tax purposes is: what is the value of the Endowment Plan deemed to be at the start of the bond? A reasonable value for the Endowment Plan might be deemed to be about 58,000. Based on this example, the value of the gift for IHT purposes on death within seven years would be about 42,000 the 100,000 which the client had before the gift was made less the 58,000 (the Endowment Plan value) which she still has immediately after making the gift. The value of the gift is added to the client s total estate to calculate the total IHT bill. Joint investor, joint life assured cases may give rise to a potential IHT liability on the first death, if it is within the seven-year period, with no funds being available from within the bond to meet it Taper relief If a liability to IHT arises on death because a client s lifetime gifts (including the discounted value of this gift) exceed the threshold level at the date of death, they may be eligible for taper relief. This is available on death between three and seven years after gifting capital. The reduction in the tax due is shown in the table below. Years between gift and death Reduction in tax payable on gift % % % % This reduction applies to the tax due, not the value of the gift for tax purposes. When calculating the client s overall IHT liability, lifetime gifts such as the PIB are applied first against the threshold, starting with the earliest. A creative approach to inheritance tax planning 11

12 Income tax 16. Discretionary trust > Your client's transfer of value using a discretionary Trust is a Chargeable Lifetime Transfer. > The trustees may change the beneficiaries or their share of the trust in future. If your client is unlikely to make any changes, they may wish to consider an absolute trust. > If the value of the gift is above the relevant limit, it must be notified to HMRC, regardless of whether there is any immediate IHT due on setting up the trust. Your client must complete Form IHT100, which can be found on the HMRC website ( An IHT return will also be required every 10 years. To set up PIB with a discretionary trust, your client should complete the PIB (Form 1) and the PIB Discretionary Trust Declaration (Form 2D) IHT Immediate charge If the discounted value of the gift, together with any other chargeable gifts made within the previous seven years, is above the IHT threshold ( 325,000 for the current tax year), there will be an immediate tax charge on the excess of 20%. The Government announced that the threshold will remain frozen at 325,000 until April The value of the gift for tax purposes will depend, first, on whether the client has used their annual exemptions. There is an annual allowance of 3,000 which can be carried forward for one year so, if the client hasn t used it in the current or previous year, the gift will be reduced by 6,000. Second, the gift may be discounted because the client is retaining the right to regular payments from their PIB. As explained in section 13 above, the discounted value is based on your client s life expectancy and the payments the Endowment Plan can be expected to produce during their lifetime. Another point to note is that capital cannot be withdrawn from the bond to pay the immediate charge. In practice it will have to be met by the client so, rather than the lifetime rate of 20%, they will be personally liable for the IHT at a grossed up rate of 25%. For example, suppose your client makes a gift into PIB, having not made any other chargeable transfers in the previous seven years. After allowing for the annual exemptions, the initial value of the gift is 850,000 and the discount given is 450,000. The immediate tax charge would be calculated as follows: Initial value of gift 850,000 Discount applicable 450,000 Discounted value 400,000 IHT threshold 325,000 Taxable amount 75,000 Tax at 25% (grossed up) 18,750 So the client would have a tax bill of 18, IHT Additional charge on death within seven years If your client dies within seven years of setting up a discretionary trust, the tax due on the gift transferred into the trust is recalculated using the full rate of 40% and the current IHT threshold. This recalculation will take account of any chargeable transfers in the seven years before the trust was set up and also any potentially exempt transfers made before the trust was set up and within seven years of death. The value of the gift will also include the grossed-up tax paid, since this was paid by the client. There may then be additional tax due because of the difference between the recalculated charge and any amount paid as an immediate charge when the trust was set up. Taper relief (see section 15.3 on page 11) may apply to the recalculation if death occurs more than three years after the trust is set up. However, if the recalculated amount, after taper relief, is less than the immediate charge already paid, there will not be any refund. 12 A creative approach to inheritance tax planning

13 Income tax Going back to the previous example, suppose the client had not made any chargeable or potentially exempt transfers and that they die between four and five years after making the transfer, when the IHT threshold is 325,000. As the tax paid under the immediate tax charge was 18,750, the additional tax due on death would be 3,750. Value of gift plus tax paid 418,750 IHT threshold 325,000 Taxable amount 93,750 Tax 40% 37,500 Taper 40% 15,000 Actual tax due 22, IHT Periodic charge There may be a periodic charge every 10 years. This applies at a maximum rate of 6% on the discounted value of the trust fund, with the calculation taking into account any chargeable transfers made in the seven years before the trust was set up and the current IHT threshold at the time of the charge. The periodic charge is based on the current market value of the trust fund. The calculation of this will include a "discount" which uses the same details as used for the original discount, but based on the client's actual age when the periodic charge is due. The client's increased age at the date of each periodic charge will reduce the amount of any discount. If your client had not made any other gifts into a trust in the seven years before they set up the Prudence Inheritance Bond, then the charge would be 6% of the excess value of the fund above the IHT threshold. Taking the previous example, where no previous chargeable transfers had been made, suppose the value of the trust fund is now 940,000, the "discount" applicable is 376,000 and the IHT threshold is now 425,000. The periodic charge would be calculated as follows: Value of trust fund 940,000 Discount applicable 376,000 Discounted value 564,000 IHT threshold 425,000 Taxable amount 139,000 Tax due at 6% 8,340 You should note that the bond cannot be encashed during your client's lifetime, so if any tax charges arise they cannot be met from the bond IHT Exit charge There may be an exit charge when the trust fund is eventually distributed to the beneficiaries (which will generally be after death, when the Whole of Life Plan pays out). This charge is based on the effective rate for the previous periodic charge (or the lifetime rate if there hasn t yet been a periodic charge), recalculated using the current IHT threshold. The effective rate is the amount of tax due as a proportion of the whole discounted value of the trust fund. The exit charge also depends on the length of time since the last charge was made. As with the periodic charge, the maximum rate that can apply is 6%. If the previous periodic charge (or the immediate charge if there hasn't yet been a periodic charge) was nil, the exit charge will also be nil, even if the trust fund value has grown. Going back to our previous example, suppose that the client dies, and the whole trust fund is then distributed, four years after the periodic charge, when the IHT threshold is 475,000. The periodic charge is recalculated as follows: Discounted value 564,000 IHT threshold 475,000 Taxable amount 89,000 20% 17,800 Effective rate = 17,800/ 564,000 x 100 = 3.156% Suppose that the trust fund is now worth 1,000,000. The exit charge is based on 30% of the effective rate, adjusted for the four years that have elapsed since the last periodic charge, measured in quarters. A creative approach to inheritance tax planning 13

14 Income tax Amount distributed 1,000,000 Tax rate = 30% x 3.156% 0.947% Adjustment factor 16/40 Tax due (= 1,000,000 x 0.947% x 16/40) 3, Joint settlor trusts Both the absolute and discretionary trusts can be set up by either a single settlor or joint settlors. For IHT purposes, a joint trust arrangement is treated as if it were two separate single trusts. This can give rise to an exceptionally complicated state of affairs where a joint discretionary trust is used and the respective trust values are above the nil rate band. It should also be noted that the death of one life assured will mean there is an effective gift to the survivor of their share of the Endowment Plan. If the joint investor is not a spouse or civil partner, this could create an IHT liability. 18. Do clients need to have a medical examination? We will obtain a General Practitioner's Report (GPR) before finalising your client s application for a PIB. We do this as it may help your client and/or their personal representatives in agreeing the value of the gifted capital with HMRC. This can be important for calculating any inheritance tax charges that may arise at the outset or subsequently. We may request a Medical Examiner's Report to let us complete our assessment of the investor s health. Where in the opinion of the underwriters after considering any medical reports that your client's underwritten age is over 90 at next birthday, no discount can be given. Once our assessments are complete, we will normally issue a letter confirming our estimate of the likely value of the gifted capital. If we are unable to obtain all the medical information we feel is necessary, or our underwriters feel that they are unable to give an assessment due to their view of the current state(s) of health of your client(s), you should note that we will not give an estimate of any discount applicable to the gift being made. We will confirm if this applies. On a joint applicant bond, where we are able to assess one life but not the other, we will normally give an estimate of the gift based on our view of the current health of the life that we can assess. Subject to our requirements being met, the plan will then start. 19. Charges 19.1 Annual management charge A charge is made on the value of the PIB Capital and Income Funds at the rate of 0.77% a year respectively (including Unit Trust Expenses). This charge may be reflected in the price of units or may be taken directly by cancellation of units. A combination of these methods may be used but the method will only be changed for operational reasons. In this situation a change in method will not increase the effect of the charge we would otherwise make at that time. The method used does not affect the total percentage of the charge taken. If the investor wishes to redirect distributions, this charge varies according to the fund(s) selected. The current fund charges are summarised in the Key Features document (IHTK10022) Switch charge Switching is not permitted on the PIB Capital Fund or Income Fund. However, switching of redirected distributions is permitted. One free switch in any 12-month period is allowed with a current charge of 25 for any subsequent switches Future increases in charges Prudential reserves the right to vary the Annual Management Charge and the Switch Charge Bid-Offer spread There is no bid-offer spread. 20. Minimum investment The minimum investment, after we deduct any Set-up Adviser charge, is a single premium of 15,000. Additional investments are not available a new PIB would have to be established. 14 A creative approach to inheritance tax planning

15 Income tax 21. Life basis PIB is available on a single life or joint life second death basis. 22. Age limits The minimum age at entry is 18 next birthday. The maximum age at entry is 90 next birthday. 23. Adviser Charging 1.1. Set-up Adviser Charge Set-up Adviser Charges (if selected) are deducted from the Total Payment prior to it being invested in the plan. The Total Payment less Set-up Adviser Charges will then be the Total Premium, which is used to set up the Endowment and Whole of Life Plans. Set-up Adviser Charge is selected as one of: > a percentage of the Total Payment (up to 2 decimal places); or > a monetary amount in pounds. But not a combination of both. Any level of Set-up Adviser Charges can be selected subject to the agreement of the client. The Set-up Adviser Charge will only be paid once the plan is actually set-up Ongoing Adviser Charge (OAC) Types of Ongoing Adviser Charge Only one type of OAC can be selected at any time: > a percentage of Endowment Premium (up to 2 decimal places); or > a monetary amount in pounds (up to 2 decimal places). Ongoing Adviser Charges will be taken at plan level and are treated as regular withdrawals for taxation purposes. An OAC may be set up at any time. The type and rate of OAC on the plan can change at any time on request. Any increases in OAC needs authorisation from the client. Any OAC is taken from the distributions, and so the only permitted payment frequency of OAC is on the quarterly Distribution date We do not facilitate Ad hoc Adviser Charging on Prudence Inheritance Bond 1.4. Rebating of Adviser Charges Rebating is not available. The adviser (in consultation with the customer) has the flexibility to choose the level and shape of Adviser Charges required in the first place Maximum Limits An overall maximum limit applies to OAC: > OAC must be less than or equal to 2% of the Endowment Premium each year. The limit is checked when the request is received and following any changes to the OAC instruction. If the maximum limit is breached at outset then the Adviser Charge Instruction is rejected. There will be no concessions on the maximum limit. 24. Unit allocation The unit allocation is 100% of the Endowment Plan single premium. 25. Unit prices Unit prices for the PIB Funds are available on (Monday Friday, 8.30am 6.00pm). Calls may be monitored or recorded for security, quality purposes, staff training and/or dispute resolution. A creative approach to inheritance tax planning 15

16 Prudential Distribution Limited is registered in Scotland. Registered office at Craigforth, Stirling FK8 4UE. Registered number SC Authorised and regulated by the Financial Conduct Authority. IHTB /2017