Our product crunchers analyse AXA Isle of Man's Estate Planning Account
The Estate Planning Account (EPA), from Axa Isle of Man, is an offshore single premium unit-linked Capital Redemption Bond combined with a trust, which can reduce your client's potential IHT liability. Trustees are appointed to invest and manage the money on behalf of the beneficiaries.
There are two types of trust available:
- Absolute trust: beneficiaries are chosen at the start and the trustees cannot change them.
- Discretionary trust: the trustees have the power to decide who is to benefit from the classes of potential beneficiary.* The way the trusts are taxed is dependent on which trust is chosen, and where the settlor, trustees and beneficiaries are resident.
The EPA is designed for clients who wish to reduce their inheritance tax liability, who can give up access to their capital forever, but who still need an income from their capital.
The aims of the Estate Planning Account are:
- To reduce potential UK IHT liability
- To provide an 'income' for life
- To increase the value of the investment over the medium to long term (at least five to 10 years or longer), by linking the lump sum invested to movements in stockmarkets and other investments.
A single lump sum of at least £50,000 must be invested, with no further investments made during the client's lifetime, although trustees can make additional investments if they choose to continue the bond after the settlor's death. 'Income' payments are withdrawals of capital.
The money will be invested in Axa Family funds (those run by the Axa Group) or Axa Select funds. Axa Select funds mirror certain underlying funds from a range of investment houses. The minimum investment per fund is £2,500.
Capital gains tax and income tax are not paid in the Isle of Man on investments held by Axa Isle of Man on behalf of investors, so investment gains in the funds are allowed to roll-up free of these taxes. The only tax to which the funds may be liable is any tax that is deducted at source from dividend income and certain interest. This is known as withholding tax, which Axa is unable to reclaim.
A 'guarantee' can be selected at the outset - though not added later or cancelled. There are two types of guarantees: the Income Guarantee and the Legacy Guarantee. There is a cost for the guarantees, which will reduce the performance of the investment. Certain restrictions apply where the guarantees are selected, such as fund choice and level of 'income'.
As the Estate Planning Account cannot be surrendered during the client's lifetime, it is not suitable for those who have no other form of savings or income.
Mike Foy, managing director, Axa Isle of Man
* The settlor's wishes will be considered, but any such instructions are not legally binding and do not need to be followed by the trustees.
It should be remembered that unit prices can fall as well as rise and your client's trustees may get back less that invested.
Please note that tax benefits may change and are dependent on individual circumstances.
Mike Twist, director, Island Financial Solutions
The choice from either Axa's own family funds, or what are effectively mirror funds from other investment management teams, gives access to around 270 funds in total. This is reduced to around 50 if one of the 'guaranteed' options is chosen. Not truly extensive, but some good names included.
The product is designed for a very specific reason, primarily reducing inheritance tax liability; therefore flexibility is not its selling point, as the product must maintain a fairly rigid structure. A reasonable fund choice and charging structure options is about it!
This product is written through Axa Isle of Man, and they have always provided us with a reasonably good standard of service.
Good local support backed up by an easy-to-navigate website that contains literature, trust information and product details. Registration is required for some of the services, but the 'my account' facility that is available to both advisers and clients is a very useful resource.
Value for money
Comparable with most offshore bonds. The charges can vary a lot depending on the amount invested, commission taken and funds chosen. There are three tiers of quarterly management charges based on the size of the premium paid, commission factored by adding to the quarterly charge and fund costs that range from an annual 0.25 up to 2%.
Nick Plumb, investment adviser at Bright Financial Planning
Limited choice of funds from Axa's Family range and Select range, but no other funds from external managers.
The bond has a single charging option, limited fund choice, no facility to appoint discretionary fund managers, and upper age capped at 79 for applicants. When the Axa Estate Planning Bond is more flexible and has more options, one has to ask the obvious question: why has this product even been launched?
Axa's offshore division has matched the high service standards of Axa in Bristol and investors and IFAs should have no major service issues.
Have never given Axa IoM a technical question that their team of experts could not answer instantly. Superb support with updates and bulletins emailed to me within hours of changes to tax law - for instance, with last year's IHT changes.
Value for money
Single charging structure and other limitations make this an unattractive offshore IHT planning option. As the existing Estate Planning Bond is so much more flexible, I just don't see the point of the Estate Planning Account. It does not get my vote.
Notes: Surrender penalities - cases where sole or younger life has a rated age of 79 or less no penalty. For sole life cases where the life is rated 80 or over and joint life cases where both lives are rated 80 or over: Surrender penalties will apply, based on the higher of the original lump sum investment or the fund value on surrender, as follows: 8.4% in year one reducing by 1.2% p.a over 7 years. Joint applications where the younger life is rated 80 or over, but the older life is rated below 80, surrender penalties will not apply. Surrenders are not permitted during the lifetime of the Donor(s)/settlor(s). Additional single premiums are only permissible following the death of the donor (s)/settlor(s).
Source: Capita Financial Software www.synaptic.co.uk (all data correct as at 24/10/08) Disclaimer: Capita Financial Software makes every effort to ensure that data provided is of the highest integrity. Capita Financial Software cannot accept any responsibility for any errors or omissions, nor can it warrant that any information supplied, or verified, by a third party is wholly accurate or complete.
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