INVESTMENTS PENSIONS INTERNATIONAL ESTATE PLANNING Controlled Access Account Client Guide This guide assumes the reader is both UK resident and UK domiciled. Canada Life International Limited (CLI) is not authorised to deal directly with the general public and it is recommended that you discuss this guide with your professional adviser. Investing in your family's future
About Canada Life International Limited (CLI) CLI is based on the Isle of Man a jurisdiction recognised for its stable government, strong regulatory controls and policyholder protection measures. CLI was established in 1987 and is the international operation of the Canada Life Group. In 1987 CLI was a founder member of the Association of International Life Offices (AILO) an association of international companies supplying insurance and investment services in many areas of the world. The international market has grown dramatically and today member companies have more than 190 bn of client funds under management, held within crossborder life insurance products*. This increase in popularity in international investment has been reflected in the growth of CLI. Canada Life combined international assets under administration 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 13.8bn 12.4bn 9.0bn 8.8bn 8.0bn 7.4bn 6.7bn 5.6bn 5.1bn 4.7bn 4.0bn 3.0bn 2.4bn 1.9bn 1.5bn 1.4bn 1.1bn bn s 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 Source: Assets under administration for Canada Life International Limited, CLI Institutional Limited (CLII), Canada Life International Assurance Limited (CLIA) and Canada Life International Assurance (Ireland) DAC (CLIAI) 31/12/16 * Source: AILO 30 September 2014 2 Controlled Access Account Client Guide
Introduction As we get older and more financially secure it is only natural that we consider the futures of our children and grandchildren. However, the situation is brought into sharper focus by the fact that UK inheritance tax (IHT) may well reduce the amount that we are able to leave to our children and grandchildren. IHT is a tax levied against the value of an individual s estate on death and also, in some circumstances, on gifts made during their lifetime. Inheritance tax YR7 An individual is allowed to leave 325,000 plus 100,000 for their main residence to his or her heirs without the estate suffering IHT. This amount is referred to as the nil rate band (NRB) and the residence nil rate band (RNRB) respectively. A married couple and registered civil partners are allowed to leave twice this amount between them and with appropriate planning, only an amount in excess of 850,000 should suffer IHT*. YR5 YR6 YR4 YR3 YR1 YR2 IHT legislation allows individuals and couples to make gifts during their lifetimes to reduce the value of their estate on death. These lifetime gifts are known as potentially exempt transfers (PETs) or chargeable lifetime transfers (CLTs) and, providing that the donor survives seven years after making the gift, the amount gifted will not be liable to the 40% IHT charge. Where the donor does not survive seven years the value of the gift is liable to IHT. For larger gifts that are above the NRB, a further relief known as taper relief may also apply reducing the amount of IHT that will be payable. Taper relief applies from three years after making a gift. (Please note that the RNRB cannot be used for lifetime gifts.) IHT will have an increasing impact on the estates of people throughout the UK. Everything you have worked hard for may be dramatically reduced unless appropriate IHT planning is put in place. * This assumes that RNRB qualifying rules apply and that the net estate does not exceed 2 million. Controlled Access Account Client Guide 3
The Canada Life International Controlled Access Account One solution to this problem lies in CLI s Controlled Access Account (CAA), which uses a trust arrangement and allows you to make a gift to your chosen beneficiary who is currently under the age of eighteen. The CAA consists of a series of yearly maturing polices. It provides you with the flexibility to extend some policies beyond the beneficiary s 18th birthday, locking the cash in for a longer duration and giving you greater control over exactly when funds are made available. The CAA provides you with the opportunity to reduce your potential IHT liability. This is of particular importance at the present time, given increasing life expectancy and the need to adapt to changing circumstances. Gifting into the Controlled Access Account Initially you make a gift into the bare trust, which will qualify as an absolute gift. A bare trust is not a settlement for IHT purposes, and as such the gift should be a PET. Seven years after making the gift, the PET should become fully exempt from IHT (assuming you are still alive). When it comes to tax planning and especially when planning for IHT, normally the sooner you start the greater your chance of reducing the effects of IHT and more may be passed to your beneficiaries (typically your children and grandchildren). Unless such action is taken, in many cases HM Treasury will be the main benefactor of your estate. IHT savings using the Controlled Access Account In order to create a solution that has the potential to save you IHT and provide varying levels of yearly income for the beneficiary, expert legal advice was sought for the creation of the trust structure which supports the CAA. When you establish the trust you will choose both a child beneficiary and an adult beneficiary. The child beneficiary has a 99% share of the CAA trust fund (and each maturing policy) and the adult beneficiary a 1% share. This approach helps to prevent the child beneficiary from surrendering the remaining policies when they reach their 18th birthday. Further details of the CAA structure are provided in the Questions and Answers section of this guide (pages 10 to 11). 4 Controlled Access Account Client Guide
How the Controlled Access Account works The CAA has the flexibility to vary the amount of income that matures each year. You can have as many policies as you like subject to the following rules: No one policy can be worth less than 2,000 at outset You can have no more than 99 policies So, if you made an investment of 100,000, your CAA could look like this: Policy Policy size No. of maturing Total value anniversary x policies = 1 2,000 5 10,000 2 2,000 5 10,000 3 2,000 5 10,000 4 2,000 5 10,000 5 2,000 5 10,000 6 2,000 5 10,000 7 2,000 5 10,000 8 2,000 5 10,000 9 2,000 5 10,000 10 2,000 5 10,000 Totals 50 100,000 You do not have to structure your CAA in precisely this way; it can be set-up with maturities over a greater number of years or with different amounts maturing each year. However, given the ability of the trustees to extend the maturity date of all or some of the policies in any year before the 18th birthday of the child beneficiary, the above structure could suit the needs of many people. The amount the beneficiaries receive each year will of course depend on the investment performance of the funds. When you invest in a CAA your investment purchases units within a fund or funds. The value of the CAA is dependent upon the performance of the chosen fund(s) which can go down as well as up. Past performance is not a guide to the future and currency fluctuations can also affect performance. The fund(s) in which the CAA invests are not the same as a bank or building society account because the capital value of the investment does not remain fixed. Controlled Access Account Client Guide 5
How does it work in practice? 60 and 30 days before each policy matures, we will write to the trustees asking them to choose from one of the following options: 1. Extend all maturing policies. 2. Extend some of the maturing policies and allow the rest to mature. 3. Allow all policies to mature. So, using our example, on the first policy anniversary the trustees could elect to: 1. Extend all five policies for a further 10 years to mature on the 11th policy anniversary. 2. Allow three of the policies to mature and extend the other two for a further 10 years. 3. Allow all policies to mature. Option 1 extend all policies Policy Policy size No. of maturing Total value anniversary x policies = 1 2,000 5 10,000 2 2,000 5 10,000 3 2,000 5 10,000 4 2,000 5 10,000 5 2,000 5 10,000 6 2,000 5 10,000 7 2,000 5 10,000 8 2,000 5 10,000 9 2,000 5 10,000 10 2,000 5 10,000 11 2,000 5 10,000 Totals 50 100,000 Please note that if the beneficiary is aged 18 or over, and it is not the final policy maturing, then the maturity proceeds must be taken. 6 Controlled Access Account Client Guide
Option 2 extend some policies Policy Policy size No. of maturing Total value anniversary x policies = 1 2,000 5 3 10,000 6,000 2 2,000 5 10,000 3 2,000 5 10,000 4 2,000 5 10,000 5 2,000 5 10,000 6 2,000 5 10,000 7 2,000 5 10,000 8 2,000 5 10,000 9 2,000 5 10,000 10 2,000 5 10,000 11 2,000 2 4,000 Totals 50 100,000 Option 3 allow all policies to mature Policy Policy size No. of maturing Total value anniversary x policies = 1 2,000 5 10,000 2 2,000 5 10,000 3 2,000 5 10,000 4 2,000 5 10,000 5 2,000 5 10,000 6 2,000 5 10,000 7 2,000 5 10,000 8 2,000 5 10,000 9 2,000 5 10,000 10 2,000 5 10,000 11 0 0 0 Totals 50 100,000 On the second policy anniversary, the same options would again be available. It can be seen that by choosing between the three options a variable amount of income can be taken each year. These examples exclude any growth on the chosen fund(s) and should be used for indication purposes only. Controlled Access Account Client Guide 7
Investing using the Controlled Access Account The CAA provides the greatest level of investment flexibility by allowing access to an almost unlimited range of investment options. This will allow the trustees and their professional adviser to build a portfolio, providing maximum flexibility when considering the objectives and risk profile. Fund choice When making an investment, having a choice which covers the wide range of asset classes and fund types available in the market today is essential. The CAA allows access to the Core fund range, which includes a comprehensive range of professionally-managed internal and external investment funds to choose from with discounted charges. In addition to this there is an Open range of investments available. The Open range allows you to invest in almost any investment fund from around the world. With the thousands of funds that are available, it is impractical to publish a list as this would be everchanging due to new funds being launched all the time. Acceptable investments can include: Funds from the UK; Unit Trusts and Open Ended Investment Companies (OEICs) Investment trusts Cash holdings Hedge funds Other funds from recognised financial jurisdictions such as Bahamas, Channel Islands, Bermuda, Switzerland, Cayman Islands, Hong Kong and so on. There are some restrictions as to what can be held with the investment and CLI has a dedicated Investment Governance Team who can assist in determining whether any proposed fund is acceptable. 8 Controlled Access Account Client Guide
Discretionary fund management If required the trustees can outsource the investment decisions to a discretionary fund manager. CLI already has agreements in place with a number of management companies, and this can be added to provided the chosen company is acceptable to CLI. Fund switching There may be times when the trustees objectives change, or you want to review the underlying investment choice. It is possible to change the underlying investments at any time, although dealing charges will be applicable. There is a transaction charge for each buying or selling of a fund holding. Fund advisers If you or the trustees decide to appoint a fund adviser then they are likely to charge for their services. Fees can vary and the level will be agreed between you and your fund adviser. The fee may be deducted from the policy by unit cancellation each quarter, based on the value of units at the end of each quarter when the fee is due. Please note that past performance is not a guide to the future. The value of units can fall as well as rise. Currency fluctuations can also affect performance. The information regarding taxation is based on our understanding of current legislation, which may be altered and depends on the individual circumstances of the investor. Summary of benefits The Controlled Access Account offers many benefits including: A yearly income for the beneficiaries, which can be taken in full or in part from the maturing policies. The capital is outside of your estate for IHT purposes after seven years. By investing in a CAA, the value of the gift is frozen for IHT purposes but the trust can still benefit from any increases in the stock market performance of the chosen fund(s). Controlled Access Account Client Guide 9
Questions and Answers What is the Controlled Access Account? The CAA is a series of life assurance policies issued by Canada Life International Limited, which offers a wide range of investment options. The CAA is available on a single and joint donor basis. On inception, the CAA is immediately issued to the trustees and you or both of you will be the donor(s) of the trust. The documentation to create the trust is included in your application pack. What are the main benefits of the CAA? The CAA allows you to benefit from a reduction in the value of your estate for IHT purposes providing you survive seven years from the commencement date of the CAA. The trustees may extend the maturity date of each policy up to and including the 49th birthday of the child beneficiary. The trustees can choose from a wide range of funds and have the ability to switch at any time. Switching, dealing, dividends, new issues and valuations are all handled by CLI. How much can I invest? The minimum investment is 50,000. There is no maximum. You cannot add additional investments in the future. Can you facilitate an adviser charge payment? You are able to ask us to deduct an amount from the initial payment and pay this to your professional adviser. The remaining amount will form the premium. Due to the structure of the product we are unable to facilitate any on-going adviser charge deductions. Please refer to our Guide to paying your professional adviser Estate planning (reference MKT649). This guide highlights popular methods of paying your adviser(s). What are the age restrictions to investing? At commencement the maximum age for the donor(s) is 89 years attained and the minimum age is 18 years attained. Trustees must be over 18 years attained and be UK resident. How is the day to day running of the CAA carried out? CLI is responsible for all dealing, settlements, stock delivery, investment income receipts and all other financial transactions within the CAA. The CAA is valued quarterly by CLI. This valuation and a full statement of all transactions (since the previous valuation) are sent to the trustees professional adviser. Does a fund adviser have to be appointed? No. However, the trustees may wish to nominate a fund adviser if they are not in a position to monitor investment markets on a regular basis and make informed investment decisions. Please note that CLI requires nominated fund advisers to be suitably authorised. A fee may be payable to the fund adviser and this will be at a level agreed upon between both parties. This fee will then be deducted from the trading cash account of the CAA based on the value of the CAA at the end of each quarter when the fee is due. 10 Controlled Access Account Client Guide
How may the investment fund choices be changed after the CAA has started? Either the trustees of the bare trust or the nominated fund adviser may instruct CLI to switch units from one fund to another at any time. We do not accept switch instructions by e-mail. For CLI s life funds, instructions received in writing by 4:30pm local time will be actioned on the next available dealing day. For transactions in funds offered by third party fund managers, all instructions received by 12 noon will be placed before the close of business that day. For funds not priced daily, deals will be placed at the next available price. All instructions received after 12 noon will be placed by 12 noon on the next business day. A switch may constitute a change to just one fund choice or to all funds. What is the position with regard to cash within the CAA? Cash is invested into the appropriate CLI money fund on a regular basis where there is a credit cash balance. Any overdrawn position, whether caused by fees or for any other reason, will incur overdraft interest to be debited quarterly. Money fund holdings are also sold on a regular basis to cover overdrafts where appropriate. Are there charges in CLI s life funds? With the exception of the money funds which are cash funds on which CLI levies an administration fee (currently not exceeding 0.65% a year), CLI makes no charge for the administration of its life funds. However, all unit trusts or similar funds, including those underpinning CLI s non-cash life funds, have management charges, which are levied by the unit trust managers or authorised corporate directors. These charges are deducted before the calculation of the unit price is provided to CLI. In addition such funds may incur other expenses. What happens when the life assured dies? On the death of the life assured, and following acceptable written notification of death, the benefit payable will be 100 plus the value of the CAA less any outstanding charges. Will probate be required? As the CAA is subject to the bare trust, providing there is at least one trustee surviving you then probate will not be required. Do I get policyholder protection with an Isle of Man life assurance company? Policyholders of CLI policies will be protected by the Isle of Man Life Assurance (Compensation of Policyholders) Regulations 1991 if the company becomes unable to meet its liabilities to them. What is my liability to UK tax? This guide assumes that you are UK resident and domiciled for taxation purposes. If you are in any doubt about your tax status you should consult your professional adviser. As the CAA is structured as a series of life assurance policies held in trust, there is no liability to capital gains tax or income tax when the trustees or your nominated fund adviser switch the investments. There could however be a liability to income tax when a policy matures. CLI has produced detailed tax notes for your professional adviser who will be able to advise further on this subject. The information regarding taxation is based on our understanding of current legislation, which may be altered and depends on the individual financial circumstances of the investor. We recommend you take your own professional tax advice. Controlled Access Account Client Guide 11
Additional information You can contact us at: Address Adviser Support Team Canada Life International Limited Canada Life House Isle of Man Business Park Douglas Isle of Man IM2 2QJ Phone +44 (0)1624 820200 Fax +44 (0)1624 820398 Email adviser.support@canadalifeint.com Website www.canadalifeint.com Canada Life International Limited and the Controlled Access Account offer you the flexibility, support and service to meet your changing needs. Canada Life International Limited, registered in the Isle of Man no. 33178. Registered office: Canada Life House, Isle of Man Business Park, Douglas, Isle of Man IM2 2QJ. Telephone: +44 (0) 1624 820200 Fax: +44 (0) 1624 820201 www.canadalifeint.com Member of the Association of International Life Offices. Canada Life International Limited is an Isle of Man registered company authorised and regulated by the Isle of Man Financial Services Authority. This paper is made from recycled materials 6965 217R