Gift investment bond to my kids...IHT?
Discussion
Guys, in order to mitigate Inheritance Tax I'm planning to either surrender my Sterling (Zurich) Investment Bond and pass the proceeds to my children, alternatively assign to them by way of gift. I have received the following information from the provider:
"The 7 year inheritance tax rule does not apply as the bond is not in trust". This was included in a letter from them following a conversation where I discussed surrender, gifting the funds and using the 7 year rule.
After I questioned the above I received a call and was told that gifting the proceeds of surrender or assigning the bond, with immediate effect will not be subject to IHT. Only if in a trust will IHT apply.
I'm very doubtful, are they correct? Any explanation gratefully received....Thanks
"The 7 year inheritance tax rule does not apply as the bond is not in trust". This was included in a letter from them following a conversation where I discussed surrender, gifting the funds and using the 7 year rule.
After I questioned the above I received a call and was told that gifting the proceeds of surrender or assigning the bond, with immediate effect will not be subject to IHT. Only if in a trust will IHT apply.
I'm very doubtful, are they correct? Any explanation gratefully received....Thanks
If you assign the bond to your kids then no immediate IHT will apply but you will have made a PET for IHT purposes.
This means that value of the bond at the date of assignment will, in effect, become taxable for IHT should you die within 7 years. You can deduct any unused annual exemption from the value of the assignment, though. If your kids subsequently surrender their share(s) of the bond, they are liable to tax on any gains at their marginal rate, although it’s not quite as straightforward as that.
If you surrender first then gift the cash, it’s treated exactly the same for IHT purposes, but you potentially pay tax on surrender.
Zurich are talking absolute nonsense, unless you have misunderstood them. If it were placed in trust by you, you would have made a CLT as at the date of transfer, which could have been liable to IHT depending on value. If you subsequently wound up the trust and distributed the proceeds to your kids, there could be an IHT exit charge to pay, that may be what they are getting at. Either way their response is less than helpful!
I have assumed you have an estate big enough to pay IHT in writing this.. many people mistakenly think they do, when they are comfortably under available allowances.
Why don’t you take advice? The number of clients I see who make a mess of their tax planning (which I subsequently have to clean up)through fee aversion is eye opening!
This means that value of the bond at the date of assignment will, in effect, become taxable for IHT should you die within 7 years. You can deduct any unused annual exemption from the value of the assignment, though. If your kids subsequently surrender their share(s) of the bond, they are liable to tax on any gains at their marginal rate, although it’s not quite as straightforward as that.
If you surrender first then gift the cash, it’s treated exactly the same for IHT purposes, but you potentially pay tax on surrender.
Zurich are talking absolute nonsense, unless you have misunderstood them. If it were placed in trust by you, you would have made a CLT as at the date of transfer, which could have been liable to IHT depending on value. If you subsequently wound up the trust and distributed the proceeds to your kids, there could be an IHT exit charge to pay, that may be what they are getting at. Either way their response is less than helpful!
I have assumed you have an estate big enough to pay IHT in writing this.. many people mistakenly think they do, when they are comfortably under available allowances.
Why don’t you take advice? The number of clients I see who make a mess of their tax planning (which I subsequently have to clean up)through fee aversion is eye opening!
NatAsp said:
If you assign the bond to your kids then no immediate IHT will apply but you will have made a PET for IHT purposes.
This means that value of the bond at the date of assignment will, in effect, become taxable for IHT should you die within 7 years. You can deduct any unused annual exemption from the value of the assignment, though. If your kids subsequently surrender their share(s) of the bond, they are liable to tax on any gains at their marginal rate, although it’s not quite as straightforward as that.
If you surrender first then gift the cash, it’s treated exactly the same for IHT purposes, but you potentially pay tax on surrender.
Zurich are talking absolute nonsense, unless you have misunderstood them. If it were placed in trust by you, you would have made a CLT as at the date of transfer, which could have been liable to IHT depending on value. If you subsequently wound up the trust and distributed the proceeds to your kids, there could be an IHT exit charge to pay, that may be what they are getting at. Either way their response is less than helpful!
I have assumed you have an estate big enough to pay IHT in writing this.. many people mistakenly think they do, when they are comfortably under available allowances.
Why don’t you take advice? The number of clients I see who make a mess of their tax planning (which I subsequently have to clean up)through fee aversion is eye opening!
Thanks NatAsp, yes, big enough for IHT. I like to keep things simple, not interested is trusts, think I'll stick to surrender, gifting and the 7 year rule.This means that value of the bond at the date of assignment will, in effect, become taxable for IHT should you die within 7 years. You can deduct any unused annual exemption from the value of the assignment, though. If your kids subsequently surrender their share(s) of the bond, they are liable to tax on any gains at their marginal rate, although it’s not quite as straightforward as that.
If you surrender first then gift the cash, it’s treated exactly the same for IHT purposes, but you potentially pay tax on surrender.
Zurich are talking absolute nonsense, unless you have misunderstood them. If it were placed in trust by you, you would have made a CLT as at the date of transfer, which could have been liable to IHT depending on value. If you subsequently wound up the trust and distributed the proceeds to your kids, there could be an IHT exit charge to pay, that may be what they are getting at. Either way their response is less than helpful!
I have assumed you have an estate big enough to pay IHT in writing this.. many people mistakenly think they do, when they are comfortably under available allowances.
Why don’t you take advice? The number of clients I see who make a mess of their tax planning (which I subsequently have to clean up)through fee aversion is eye opening!
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