Scottish Equitable International is launching a Reserved Interest Trust, which allows investors to t...
Scottish Equitable International is launching a Reserved Interest Trust, which allows investors to take regular withdrawals from an insurance bond without incurring inheritance tax (IHT).
The plan sets up a trust through which the trustees buy an offshore bond, with the client deciding in advance to take a regular withdrawal of 5% per year for 20 years. Under current legislation, this withdrawal is not subject to an immediate liability to income tax.
For inheritance tax purposes, this income stream is treated as a potentially exempt transfer and will be outside the investor's estate if they survive for seven years or more. If they die before the end of the seven-year period, the amount of IHT payable may be reduced as the trust offers a potential discount based on the client's health and age.
The trust is suitable for use with any of Scottish Equitable International's offshore bonds based in Dublin, all of which have a minimum investment level of £15,000.
The group is urging advisers to take advantage of the 5% tax deferred withdrawal facility available on insurance bonds, as there is a chance it may soon disappear.
Ron Sandler recommended it be abolished in his review of the industry last year and the Inland Revenue is currently looking at it, with an announcement likely to be made as early as this year's Budget.
Interest rates held
'Transfer volumes to decrease'
‘Call to action for mortgage advisers’
A brief history of bonds