At a recent Association of International Life Offices (AILO) meeting, my AEGON Scottish Equitable colleague, Kate Smith of the Pensions Development Department, made a presentation about A-day one year on.
The session looked at the opportunities for offshore plans around A-day issues.
It’s been well documented how you can use offshore plans effectively alongside pensions. For example, those individual above the lifetime allowance, now at £1.6m, or when clients want to take benefits before the minimum age which will be 55 by 2010.
The idea of SIPPs investing into offshore bonds also arose. Despite the extension of investment powers that followed A-day, there may be opportunities for offshore bonds. An offshore bond is an acceptable asset even if that, in turn, invests in something that is not, such as an institutional class Cayman Islands hedge fund.
After covering SIPPs, Kate’s presentation introduced us to the idea of ‘ripping and stripping’.
Suddenly, some of the more drowsy male members of the audience starting paying attention. This was not, however, a quote from a bodice ripper set in days of yore but a way to plan around pensions, bonds and inheritance tax.
It works like this.
Once the client reaches age 75, they must either buy an annuity or go into ASP. If they go into ASP, then die, any unused ASP funds will be taxed by at least 70% (with possibly inheritance tax as well), unless they’re paid to a dependant or charity.
The way round this is to ‘rip open’ the pension and ‘strip out’ the money as quickly as possible. Take out the money as income and use it for inheritance tax (IHT) planning purposes.
Those of you involved in IHT will be fully aware of the options available with trusts, but the beauty of ripping and stripping is that money is invested in IHT schemes as soon as possible giving a better chance to use the nil rate band again, after seven years.
The presentation ended with the point that A-day continues to give opportunities for advice involving offshore plans. This is a theme we’ll return to in a further blog!
Steve Whalley is head of marketing at AEGON Scottish Equitable
The views expressed in this article are those of its author and do not necessarily represent those of IFAonline or any other Incisive Media affiliated publication or website.IFAonline
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