Investments. Investment Bond Inheritance tax planning. Your online guide

Transcription

1 Investments Investment Bond Inheritance tax planning Your online guide

2 HOME Contents Useful information 3 Why planning for inheritance tax 4 (IHT) is important How you can reduce your IHT liability 9 Think it over 30 2

3 Useful information This document has been designed by AXA Wealth to provide you with useful information about how Investment Bonds can be used for Inheritance Tax Planning. Everyone s situation is different, so the advice you receive and recommendations made to you must come from your financial adviser s personal skill and financial knowledge and not be based on this document alone. 3

4 Why planning for inheritance tax (IHT) is important You ve worked hard all of your life to get to where you are, and providing for those you care about is important to you. However, just owning your own home and having sufficient capital to provide a reasonable income during your retirement may leave your estate with a sizeable IHT liability. And, without careful planning and advice, your loved ones could face a tax bill they would need to pay before your estate is settled. Additional stress at a time when they need it least. Taking steps now could make a big difference to your loved ones in the future. Also, you ll know that your property and possessions will benefit those who you want them to. This guide provides you with information on the different options you can use to reduce your IHT liability. Of course, everybody s situation is different and it s important to speak to your financial adviser to discuss solutions specific to your personal circumstances. What is IHT? Rising house prices could increase your IHT liability How to calculate the value of your estate Transferring the unused proportion of the nil rate band 4

5 What is IHT? IHT is the tax paid on your estate, which is everything you own at the time you die. Sometimes it is also payable on assets you may have given away during your lifetime. Your assets may include property, possessions, money and investments. In the UK, you will be liable for IHT if your estate is valued over the current threshold of 325,000. The tax rate is currently 40%* on everything over this amount. * The tax rate may be reduced to 36% if 10% or more of the estate is left to charity. Although IHT accounts for a relatively small amount of the total UK tax receipt, it s still a significant amount. The total IHT receipts for the 2014/15 tax year was 3.8bn, an increase of 11.9% on the year before. Just owning a home and having sufficient capital to provide a reasonable income during retirement may leave your estate with a sizeable IHT liability. The effect of IHT on an estate is shown in the table below, demonstrating why you should take steps now to reduce the size of your estate or look at how you can minimise your IHT liability. 3.42bn Collected in 2013/14 tax year 3.8bn Collected in 2014/15 tax year Value of assets IHT payable on IHT Rate Amount of IHT Percentage of tax paid on estate 325,000 Nil Nil 0 0% 500, ,000 40% 70,000 14% 1,000, ,000 40% 270,000 27% 2,000,000 1,675,000 40% 670,000 34% Source: HM Revenue & Customs July Gov.uk/government/statistics/inheritance-tax-statistics-commentary 5

6 Rising house prices could increase your IHT liability Owning your own home could contribute significantly to creating an IHT liability. The IHT threshold ( 325,000) has been frozen at the current rate since April But property prices have increased most years in this period, pushing many estates above the IHT threshold. In March 2009 the average UK house price was 150,946 1 but for the same period in 2015, the average house price had increased 26% to 189, For the 2012/13 tax year, residential property accounted for approximately one third of the total value of taxpaying estates 3. Using national data can often disguise significant regional differences in house prices across the UK, so the contribution your home will have on your estate may even be more significant. Source: 1 Nationwide House Price Index: Q Nationwide House Price Index: March Inheritance Tax Statistics 2012/13 6

7 How to calculate the value of your estate There s more to an estate than you might expect. Your estate can include your home, its contents, your car, your bank and building society accounts, your investments (i.e. shares and bonds) and your share of any assets owned jointly. It also includes certain gifts made during your lifetime. You can deduct certain expenses from your estate, such as funeral costs and relevant outstanding bills. There are also some tax reliefs if you have an interest in a business or own agricultural property as part of your estate. Rules surrounding tax reliefs, deductions and gifts are complex and do vary so it s important you speak to your financial adviser about how you can use these to reduce the size of your estate. UK domiciled Where you re domiciled (i.e. the country you treat as home) is also very important. If you are domiciled in the UK, any of your assets held outside of the UK will be considered part of your estate for IHT purposes. If you are non-uk domiciled you will only be liable for assets held in the UK. How IHT is calculated Shown here is a fictitious example of a simple estate. Mary died on 28 April 2015 and left her estate to her son, James, through her will. Mary s husband Tom died several years previously and made full use of his IHT threshold. Think about your own assets and liabilities and then on the next page, roughly calculate your own potential IHT bill. Mary s assets House 300,000 Investments 75,000 Bank account / deposits 133,000 Car 7,000 Household goods 4,000 Total value of assets 519,000 Mary s assets Funeral expences 2,500 Telephone bill 36 Electricity bill 68 Gas bill 76 Total value of liabilities 2,680 Your assets Your assets 7

8 Calculating the tax bill There is an IHT bill of 76,528 on Mary s estate. This could have been reduced if Mary had planned for IHT and taken appropriate action. IHT can be a real financial headache for your loved ones when they need it least. IHT must usually be paid before the estate is settled which means that the beneficiaries of your will may experience a delay in receiving what you have left them. Consequently, your savings may not be accessible to pay IHT so your beneficiaries will need to find other sources of funds to settle the bill. However, there are options you can consider that will help you minimise the amount of IHT your estate would be liable for and therefore leave more to those you care most about. Work out the net value of the estate by subtracting the total liabilities from the total assets Then, to calculate the total amount liable to IHT, subtract 325,000 from the net value of the estate (frozen until tax year 2020/21) Example calculations 519,000 2,680 = 516, , ,000 = 191,320 Finally, calculate 40% 191,320 x 40% Total of IHT bill 76,528 Your calculations Transferring the unused proportion of the nil rate band. The nil rate band is the value of your estate that is not subject to IHT. When an individual dies and they are married or in a civil partnership, the value of their estate can normally be passed to their spouse/civil partner free from any IHT liability. When the surviving spouse/civil partner dies, any unused proportion of the nil rate band from the first spouse/civil partner can be used on the second death to reduce the IHT liability. Transferring the unused proportion of the nil rate band in this way, can potentially double the IHT threshold from 325,000 to 650,000 and therefore significantly reduce the value of the estate taxed at 40%. Depending on the size of your estate, there are other options you can consider along with spouse exemption to reduce your potential IHT liability. Further information about these is provided in the following pages. 8

9 How you can reduce your IHT liability In this part of the guide we ll look at the different options you can use to reduce your IHT liability, covering: 9

10 TRUSTS IHT planning - Trusts In this section we take a look at how trusts can be used as part of your IHT planning. What is a trust? Planning for IHT What are the main types of trusts for IHT planning? Planning for IHT 10

11 What is a trust? A trust is a legal way of giving your assets to others. It defines what assets are being given away. These could include buildings, investments or cash. Although there are many types of trust, they all have broadly the same purpose to detail your wishes for an asset. Some trusts also aim to reduce the potential IHT liability on your estate. Trusts can be complex and we recommend you speak to your financial adviser to find the most appropriate solution for your personal circumstances. The person who creates the trust is the Settlor. Through the trust deed, the Settlor chooses the people who can benefit from the trust, the Beneficiaries, and states how and when they can benefit from the gifted assets. For an Absolute or Bare Trust, the person who creates the trust is referred to as the Donor. For a trust to be effective for IHT planning, the Settlor and sometimes their spouse/civil partner, should not be Beneficiaries. Finally, the Trustees are the people chosen by the Settlor to administer the trust and are the legal owners of the assets in the trust. Trustees must be adults of sound mind and agree to administer the trust for the benefit of the Beneficiaries. Usually it is best to appoint at least two Trustees, although in some circumstances three or four may be preferable. 11

12 Planning for IHT In certain circumstances, trusts are an effective solution to minimise the 40% tax charge on assets where the value of the estate is above the 325,000 or even 650,000 if the spouse exemption is used. Even taking this into account, your estate may be of sufficient value to benefit from using trusts to mitigate a potential IHT liability. One important point to be aware of is that transfers into most trusts will be regarded as Chargeable Lifetime Transfers for IHT purposes. This means if the total of all your Chargeable Lifetime Transfers (including those made in the previous seven years) is over the current IHT threshold, then an IHT charge may be payable when the trust is set up. Indeed, if you die within seven years of any Chargeable Lifetime Transfers, an additional IHT charge may arise. Plus, further IHT charges may arise on each ten yearly anniversary of the trust, and when capital is distributed to the Beneficiaries. However, if you survive a Chargeable Lifetime Transfer by seven years, it will no longer be considered as part of your estate for IHT purposes. 12

13 Planning for IHT - continued Why would I need a trust? Aside from potentially reducing your IHT liability, trusts have some additional benefits: They allow the Trustees to determine who can receive which assets and when They offer flexibility and some control They allow for timely distribution of the assets Defining who receives what and when A trust allows you to provide instructions to the Trustees on who will benefit, what they are to receive and when they can receive it. However, unless the trust is a bare trust, the Trustees will have the flexibility to use their discretion in certain circumstances. This is why it is important to choose Trustees carefully and ensure that they understand your personal wishes for the trust assets. Flexibility and some control Most trusts will allow you to include yourself as a Trustee. This will enable you, in conjunction with the other Trustees, to have a say in the administration of the trust. Timely distribution of assets Assets held under a trust are normally outside your estate for IHT purposes and can be dealt with on your death without having to wait for probate. For example, the proceeds of a life assurance policy held in trust can be paid to the surviving Trustees on production of a death certificate. This means there is no delay while your personal representatives sort out the estate. 13

14 What are the main types of trusts for IHT planning? Absolute or Bare Trust This is the simplest type of trust. The trust is set up for named individuals, often minors (children) and gives them a right to both the income and capital of the trust. An Absolute/Bare Trust may be appropriate when the intentions of the Donor are without doubt because it is not possible to change who the Beneficiaries are once the trust is set up. Planning for IHT One important benefit of an Absolute or Bare Trust is that transfers of assets to it are not classed as Chargeable Lifetime Transfers. Therefore, no matter what size the transfer is, there will be no charge to IHT at outset or on each ten yearly anniversary. Instead, the transfer would be a Potentially Exempt Transfer. If the Donor survives the transfer by seven years, it will fall out of the estate for IHT purposes. For more information on Chargeable Lifetime Transfers and Potentially Exempt Transfers, please see the Lifetime Gifts section. Discretionary Trust This type of trust offers much greater flexibility as the Beneficiary does not have a specific right to the income or capital from the trust. The Trustees have the discretion to decide who will benefit from a selection of Beneficiaries. They also choose the amount and the timing of any benefit paid out. 14

15 What are the main types of trusts for IHT planning? - continued Interest in Possession Trust This type of trust generally gives the Beneficiary the right to income from the trust, less expenses. Sometimes known as a Life Interest Trust, the Beneficiary with the life interest (the life tenant) has a right to the income for life or for a fixed period. On their death, or expiry of the fixed period, the capital will pass to the other named Beneficiaries. This type of trust is most commonly used in wills to give a surviving spouse an income, but eventually for the capital to pass to others e.g. children. Most of these trusts contain a power of appointment, which allows the Trustees to appoint some or all of the trust s assets to the Beneficiaries, or replace the original life tenant with a new life tenant. The range of Beneficiaries and any restrictions on who these can be will be contained within the terms of the trust. Following the Finance Act 2006, lifetime transfers into Interest in Possession Trusts will, broadly speaking, be treated the same as transfers to Discretionary Trusts. What do I need to consider? Setting up a trust is essentially about choice and in this case what you want to achieve is key. The taxation implications are also an important consideration and are subject to individual circumstances. Follow our flow chart on page 16, which gives you an idea of the questions you need to consider and what this may mean to you. Trusts can be complex and we recommend you speak to your financial adviser discuss which assets you should put in trust and which type of trust is appropriate for your own personal circumstances. 15

16 Planning for IHT Are you domiciled* in the UK? NO EXCLUDED PROPERTY TRUST This can help prevent any overseas assets falling into the UK IHT net if you become UK domiciled. It provides access to the investment and any growth. GIFT TRUST Uses either an Absolute/Bare Trust or Discretionary Trust (where the Settlor cannot be a Beneficiary). The investment is outside your personal estate after seven years. Where a Discretionary Trust is used, the potential for entry, ten-yearly anniversary and exit charges should be considered. There is no access available to the investment or any growth. YES YES None None DISCOUNTED GIFT TRUST Uses either an Absolute/Bare Trust or Discretionary Trust. You receive regular income, which is a withdrawal of capital from the underlying investment (i.e. an Investment Bond). This is set up at the start and can not be altered. There is an immediate reduction in your estate equivalent to the discounted portion of the investment required to provide your income. The remainder of the investment will be outside your personal estate after seven years. Any growth on the investment is outside your personal estate. Where a Discretionary Trust is used, the potential for entry, ten-yearly anniversary and exit charges should be considered. START Would you consider using Trusts to plan for IHT? NO What level of access do you require to the capital? Income Income only only Income and and access to to remaining original investment LOAN TRUST This uses a Discretionary Trust. You make a loan to the Trustees. Access to the loan is available to you and can be repaid either on a regular basis or by single amounts on demand. Any growth on the investment is outside your personal estate. The potential for ten-yearly anniversary and exit charges should be considered. DISCRETIONARY WILL TRUST For married couples and registered civil partners, a Discretionary Trust is created within each will. It preserves access during your lifetime. It uses the nil rate band on the first death. Access is available to the surviving spouse/civil partner at the discretion of the Trustees. The unused proportion of the nil rate band on the death of the first of a married couple/civil partnership to die can be utilised by the survivor on his/her subsequent death see the Could IHT affect your estate? section for further details. Talk to your financial adviser about other forms of IHT planning Unrestricted access access during during your your lifetime lifetime to original to original investment and and any any growth growth * Typically, UK domicile means that your country of origin is considered to be the United Kingdom. Normally, this will be based upon the domicile of your father. If you are UK domiciled, your worldwide estate will be subject to UK IHT on your death. 16

17 WILLS IHT planning - Wills Why your will is important In this section we will cover what can happen if you die without making a valid will. Legally, this is known as dying intestate. Here, the legal rules of intestacy apply in a very specific manner. In fact, you may even be surprised where your money can go, particularly if you don t have any children. What happens if there is no will? A guide to who gets what What you need to do 17

18 What happens if there is no will? Making a will is your first step to make sure your estate is distributed as you wish. It can also be a useful tool for IHT planning. If you have dependent children, making a will could be particularly important. It can state what arrangements should be made for the children, should either one or both parents die. Making a will makes good sense You can leave up to 325,000 free of IHT to anyone in your will and normally there is no IHT liability if all of your estate is left to a surviving spouse or civil partner. Plus, if any of the IHT nil rate band of the first spouse/civil partner to die is not fully used on the first death, then the unused proportion can be used on the survivor s death. This potentially doubles the IHT threshold to 650,000. It is worth considering that if you are not married or in a registered civil partnership, your partner will not automatically inherit anything unless there is a will in place. As a consequence, they could be left with serious financial or practical difficulties at a very vulnerable time. So making a will could be one of the most important things you could do for them. If you die without leaving a will, your estate will be distributed according to the rules of intestacy - find out where your money would go. 18

19 A guide to who gets what Do you have a wife, husband or civil partner? YES NO Your estate passes to your spouse or civil partner. Your spouse inherits the first 250,000 plus the personal chattels plus half the remainder. The remaining half is divided equally between your children. On the subsequent death of your spouse or civil partner, their half of the remainder goes to your children. Where any children are deceased, their share goes to their children. NO YES Is your estate worth 250,000 or more? Do you have any children? (Step-children do not inherit under the rules of intestacy. Adopted and illegitimate children do) Do you have any children? (Step-children do not inherit under the rules of intestacy. Adopted and illegitimate children do) Are your parents still alive? YES YES Your estate is shared equally between your children. If any children are deceased, their share goes to their children. Your estate is shared equally between your parents. A sole parent takes all. NO Your estate passes to your spouse or civil partner.* Do you have brothers or sisters? Do you have half-brothers or sisters? YES YES Your estate is shared equally between your brothers or sisters. If any are deceased, their share goes to their children. Your estate is shared equally between your half-brothers and sisters. If any are deceased, their share goes to their children. Are your grandparents still alive? YES Your estate is shared equally between your grandparents. A sole grandparent takes all. Do you have aunts or uncles? YES Your estate is shared equally between your aunts and uncles. If any are deceased, their share goes to their children. The chart represents AXA Wealth s understanding of the law of England and Wales on 1 December It is for information purposes only and does not constitute legal advice. The intestacy laws vary depending on whether you live in England & Wales, Scotland or Northern Ireland. To find out what rules apply to you, visit: gov.uk/wills-probate-inheritance/if-the-person-didnt-leave-a-will Do you have half-aunts or uncles? NO THE CROWN TAKES IT ALL YES Your estate is shared equally between your half-aunts and uncles. If any are deceased, their share goes to their children. *The law requires that your husband, wife or civil partner must survive you by 28 days in order to benefit. 19

20 What you need to do Four things to think about: Who will look after any dependent children and who do you want to benefit from your will? Who is going to be your personal representative(s) the person(s) who will look after your estate following your death? How much money and what property and possessions do you have? If you are married or in a registered civil partnership, it s important to keep records. On death, your executors should be able to assess if you have any unused proportion of the nil rate band to transfer and make this amount known to your surviving spouse or civil partner. How do I make a will? If you wish, you can make a will yourself. However, you should only consider doing this if the will is going to be very straightforward. It is generally advisable to use a solicitor to write a will or check the will you have written to ensure it will have the effect you want. It is easy to make mistakes and errors, which will usually cause problems after death. A solicitor can also help write a will in a way to help reduce paying more IHT than is necessary. Keep your will safe and review it from time to time When your will is completed, you should store it in a safe place and make sure someone knows where to find it. You should review your will every couple of years or after any big changes in your life. Divorce, separation, marriage and the birth of a child can all have an impact on a will. Where can I get more information? Speak to your financial adviser in the first instance. 20

21 LIFETIME GIFTS IHT planning - Lifetime gifts In this section we take a look at how lifetime gifts can be used to reduce the value of your estate. Lifetime gifts are an important consideration in IHT planning and can provide a tax efficient way of disposing of your assets. However, it s important to remember that money given away before you die is normally considered as part of your estate and subject to IHT if you die within 7 years. Gift terms made simple IHT gift exemptions How does all of this fit together? Will there be IHT to pay on gifts? Taper relief 21

22 Lifetime gifts Gift terms made simple Donor/Donee The Donor is the person making the gift, which could be cash, property, shares or other items of value. The Donee is the person receiving the gift. Outright Gift This is a gift to someone where the Donor does not retain any benefit whatsoever. It s given away and that s it. The gift is definitely no longer part of the Donor s estate. So if you make an Outright Gift to someone during your lifetime, it is known as a Potentially Exempt Transfer. It will only become chargeable to IHT if you die within seven years of making the gift. Outright Gifts to spouses or civil partners are normally exempt from IHT. Gift with Reservation This is a gift with strings attached, so it s not fully given away. This means that you keep some benefits from the gift for yourself. A Gift with Reservation may be good for ensuring the right people receive the right assets, but it will not reduce your estate for IHT purposes. An example often quoted is of a family home. If you give away your house to your children but continue to reside there without paying a commercial rent, or you continue to benefit from the property yourself, the house may not be exempt from IHT even if you live for 7 years after the date of the gift. Potentially Exempt Transfer This is used to describe an Outright Gift during the period between the gift being made and it falling outside of your estate. From the date you make a gift, it is a Potentially Exempt Transfer for seven years. After this time, the gift becomes an Exempt Transfer. Should you die within the seven year period, the gift becomes a Chargeable Transfer, meaning it is included in your estate for IHT purposes. 22

23 IHT gift exemptions The good news is that there are a number of exemptions, including those summarised below. Further information is available from the HM Revenue & Customs website: hmrc.gov.uk/inheritancetax Any gift to a spouse or civil partner is normally exempt from IHT. GIFTS TO YOUR SPOUSE OR CIVIL PARTNER If you are UK domiciled but your spouse is not, any gifts you make will only be exempt from IHT up to the value of 325,000. It is now possible for a non-uk domiciled spouse to make an election to be treated as being UK domiciled for IHT purposes and the normal spouse exemption will apply in full to all transfers made to the previously non-uk domiciled spouse. However, the worldwide estate of the non-uk domiciled individual will be liable to IHT. If no election is made, only the UK assets of a non-domiciled individual are liable to IHT. Typically, UK domicile means that your country of origin is considered to be the United Kingdom. Normally, this will be based upon the domicile of your father. If you are UK domiciled, your worldwide estate will be subject to IHT on your death. MAINTENANCE PAYMENTS This exemption category includes certain maintenance payments for your spouse, civil partner and your ex-spouse or ex-civil partner. It also includes payments for the maintenance or care of dependent elderly relatives and payments for the maintenance, education or training of your children up to the end of the tax year after reaching age 18 or, if later, ceasing full-time education or training. WEDDING GIFTS There are some restrictions on this to make sure you don t give too much away. Basically it s 5,000 for each of your children, 2,500 for your grandchildren and great grandchildren, and 1,000 to anybody else. GIFTS TO INSTITUTIONS There is a great deal of scope here. The list includes: gifts of any amount to UK based charities; national museums; universities; registered housing associations and qualifying parliamentary political parties. SMALL GIFTS These are gifts totalling not more than 250 in any tax year. This applies to one gift or several. This cannot be used with other exemptions. OTHER GIFTS Up to 3,000 in any tax year can be given as gifts in addition to the above exemptions. If this exemption of 3,000 is not fully used, the surplus can be carried forward for one year only. 23

24 How does all of this fit together? Let s put this together to show how the gift terminology works in practice: Seven years You, the Donor, make a gift to another individual (Donee) The gift is either an Outright Gift or a Gift with Reservation. Remember, a Gift with Reservation will always be part of your estate. An Outright Gift is a Potentially Exempt Transfer for seven years, remaining in your estate. TAX? If you die within seven years, the gift becomes a Chargeable Transfer and may be subject to IHT. After the first three years, any tax liability on the gift begins to reduce. After seven years, the gift will not be liable to IHT. 24

25 Will there be IHT to pay on gifts? When you die, all the Potentially Exempt Transfers you have made in the previous seven years become Chargeable Transfers. They must be added together to assess how much, if any, IHT is payable. Very briefly, there are normally three potential outcomes: Who pays the IHT on gifts? If you die within seven years of making a gift and there is IHT liable on it, the Donee is primarily liable for paying the tax. If not planned for, this may create financial difficulties for your loved ones years after they received the gift. Do I need to keep a record of the gifts I make? When you die, your personal representatives will need to produce evidence of gifts made in the previous seven years. If no records have been kept, this can be a lengthy task of checking through seven years of bank statements and financial records. If you have not done so already, we would strongly recommend you start keeping a record of the gifts you make. It doesn t have to be detailed, but should include who received the gift, the value of the gift and when it was made. It could also be said that because it is possible to transfer the unused proportion of the nil rate band, this has become even more important. SCENARIO The gifts that you made are added to your estate. The total is below the taxable threshold The gifts that you made are less than the taxable threshold. Add them to the estate and it takes it over the taxable threshold The gifts alone are more than the taxable threshold POTENTIAL OUTCOME There is no IHT to pay There will be some IHT to pay * There will be some IHT to pay * Assuming that the estate does not pass to an appropriate exempt person (e.g. your husband, wife or civil partner). 25

26 Taper relief Is there any allowance for gifts made within the seven years before death? Yes, and it could be argued that it is best to take advantage of it sooner rather than later. It is called taper relief, and is available on certain gifts. As a basic formula, if the total of any Outright Gifts made in the last seven years, exceeds the IHT threshold, then the amount of chargeable transfers over this amount are liable to IHT at 40%. Taper relief will reduce the amount of tax payable, as shown in the table below, if the gifts were made three years or more before you die. Taper relief reduces the amount of tax payable on a gift, not the chargeable value of the gift. Let s look at an example of a 100,000 gift which is above the IHT threshold. You will see how the amount of tax reduces over time, depending on when the Donor dies. COMPLETE YEARS BETWEEN THE GIFT AND DEATH TAPER RELIEF TAX PAYABLE ON A GIFT IS REDUCED BY 0-3 0% 40, % 32, % 24, % 16, % 8, NO TAX none 26

27 LIFE ASSURANCE IHT planning - Life assurance In this section we will explain how life assurance can help your heirs pay any liability and release their inheritance. Life assurance Choose the right type of plan 27

28 IHT planning - Life assurance In very simple terms, a life assurance plan will pay out a tax free lump sum on death to cover your IHT liability. To begin with, you calculate your potential IHT liability and then insure your life for the appropriate amount. We ve provided information earlier in the guide to help you understand your potential IHT liability. You may want to consider using a life assurance plan to pay off your IHT liability if it s not possible to reduce the size of your estate and therefore your IHT liability. This may be particularly relevant to you if you have spare regular income rather than a lump sum, as the cost of life assurance is spread over time by paying regular premiums. The cost of life assurance will be based on a number of factors, including your age, your current health and the level of life cover required. If the regular premiums are more than you wish to pay, you could reduce the amount of cover to a lower level. Although this may not cover the whole IHT liability, it will reduce the amount of tax your estate will have to pay. Alternatively, your heirs may be willing to assist with the payment of premiums so that the whole IHT liability on your estate is covered. In addition to paying off your potential IHT liability, a life assurance plan, providing it is written in trust, is normally outside your estate for IHT purposes. This means it will be paid to the Trustees on production of a death certificate and not delayed while your personal representatives sort out the estate. 28

29 Choose the right type of plan There are many different types of life assurance policies and trusts and we recommend you speak to your financial adviser to find the most appropriate combination for your personal circumstances. A whole of life plan This type of life assurance will last as long as you live, paying out a lump sum when you die. It is appropriate for IHT planning because the lump sum can be used to pay the potential IHT liability. However, for this to work, it must be written in trust to stop the proceeds of the plan from falling into your estate, which would increase the IHT liability. By writing the plan in trust, it means the proceeds will go to beneficiaries under the trust instead of being held within the estate. When a plan is written in trust, it is held for the benefit of others. This means that the regular premiums are classed as gifts and they may be included in your estate for up to seven years after the date of payment. Fortunately, there are a number of annual gift exemptions that may cover the premiums. Please see the Lifetime Gifts section for more information on these exemptions. Term assurance As the name suggests, a term assurance plan can cover a specific term, for example, five or ten years. This type of assurance is unlikely to be appropriate for covering an IHT liability because you may die after the term has ended. However, it could be used to cover any potential tax liability on large gifts you have made during your lifetime. For example, a seven year term assurance plan, written in trust, could provide your beneficiaries with sufficient funds to cover any potentially exempt transfers which may be liable to IHT. Please see the Lifetime Gifts section for more information on potentially exempt transfers and gifts. There are many different types of life assurance policies and trusts and we recommend you speak to your financial adviser to find the most appropriate combination for your personal circumstances. 29

30 Think it over You ve worked hard all of your life to get to where you are, and providing for those you care about is important to you. Without careful planning and advice, your loved ones could face a tax bill they would need to pay before your estate is settled. So, taking steps now could make a big difference to them in the future and give you peace of mind knowing that your property and possessions will benefit those who you want them to. We ve provided information in this guide about the different options you can use for you IHT planning. But, as everybody s situation is different, it s important to speak to your financial adviser about the solutions specific to your personal circumstances. Important notes Whilst every effort has been made to ensure the accuracy and completeness of the information, no representation or warranty, express or implied, is given in respect of the accuracy or completeness of the information. The information is based on AXA s understanding at the time of writing of current law and HM Revenue & Customs practice which may change. It does not constitute legal or tax advice and must not be treated as such. The companies in the AXA Group can take no responsibility for any loss which may occur as a result of reliance on this information. 30

31 For further help or support please contact us on: axawealth.co.uk Follow us at: twitter.com/axawealth linkedin.com/company/axa-wealth AXA Wealth, Winterthur Way, Basingstoke RG21 6SZ. Telephone number: As part of our commitment to quality service and security, telephone calls may be recorded. AXA Wealth includes the following companies: Architas Multi-Manager Limited (No ), AXA Portfolio Services Limited (No ), AXA Wealth Services Limited (No ) and AXA Wealth Limited (No ). All of these companies are registered in England and limited by shares. Their registered office is 5 Old Broad Street, London EC2N 1AD. Architas Multi-Manager Limited, AXA Portfolio Services Limited and AXA Wealth Services Limited are authorised and regulated by the Financial Conduct Authority. AXA Wealth Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. AXA Wealth Services Limited promotes and distributes the products of the AXA Wealth companies, Utmost Limited and certain AXA Life Europe Limited products in the United Kingdom. Details of the companies offering specific products are shown in the product literature. AXA Wealth is a marketing brand used by AXA Portfolio Services Limited. IHT0001 September 2016

32 AXA Wealth s investment, pension and direct protection businesses have been sold to the Phoenix Group. AXA Wealth and SunLife (comprising of the companies Winterthur Life UK Holdings Limited, AXA Wealth Services Limited, AXA Wealth Limited, AXA Trustee Services Limited and AXA Sun Life Direct Limited) have been acquired by Pearl Life Holdings Limited (and now form part of the Phoenix Group - AXA and WINTERTHUR are trademarks that are owned by AXA SA and will be used for a short period under a licence granted by AXA SA to the Phoenix Group. The registered office for Winterthur Life UK Holdings Limited ( ), AXA Wealth Services Limited ( ), AXA Wealth Limited ( ), AXA Trustee Services Limited ( ) and AXA Sun Life Direct Limited ( ) has been changed to 1 Wythall Green Way, Wythall, Birmingham, B47 6WG. Pearl Life Holdings Limited is registered in England ( ) at 1 Wythall Green Way, Wythall, Birmingham B47 6WG. As part of Phoenix Group AXA Wealth Limited will continue to be authorised by the Prudential Regulation Authority and regulated by Prudential Regulation Authority and Financial Conduct Authority; AXA Wealth Services Limited will continue to be regulated by the Financial Conduct Authority. AW0503 October