Scottish Equitable International is urging IFAs to make the most of the 5% tax deferred withdrawal f...
Scottish Equitable International is urging IFAs to make the most of the 5% tax deferred withdrawal facility - which is tipped to be scrapped by the Revenue soon - by investing clients' money in a trust plan which will them to take regular 5% withdrawals from an insurance bond while deferring income tax.
The Reserved Interest Trust - which will be launched on Monday - sets up a trust and the trustees then buy an offshore bond. The investor decides in advance to take a regular withdrawal of 5% each year for 20 years from the bond which, under current legislation, will not be subject to immediate liability to income tax.
In addition, the gift is a Potentially Exempt Transfer, which means that the gift is not subject to Inheritance Tax if the giver survives for seven years or more. Even if the giver dies before the end of the 7-year period, the amount of inheritance tax payable may be reduced as the trust offers a potential 'discount' based on the client's age and health.
The trust is a discounted gift trust which allows clients to retain access to their money while mitigating inheritance tax. SEI's technical manager, Margaret Jago, says the trust is particularly popular for clients in the above 50 age group who are approaching retirement.
ScotEq International is encouraging IFAs to act now as the 5% tax deferred withdrawal advantage may be cut in the near future.
"The Sandler review perceived this advantage as a regressive tax favouring the rich, and so he recommended that this facility be abolished," says Jago.
The Inland Revenue is currently reviewing this facility. An announcement regarding its future is expected to be made in the budget this year.
When asked if the outcome of the 5% tax withdrawal facility will be revealed in the Sandler paper on simplified products - a consultation by the treasury which is due out at the end of next week - Jago refused to comment and claimed it was a separate issue.
It suggests SEI are already aware of some of the contents of the Sandler paper, but advisers will have to wait till the 2003 Budget is published in March to find out if the 5% tax withdrawal facility will be dropped.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till