IHT Planning-Trusts
Discussion
Recently carried out my usual three yearly update Wills and IHT tax planning, and from a referral by my newly enlisted accountant, the solicitor I had a brief meeting with, appeared to be against both trusts and life insurance policies. The former due to forming the same, raises one's head above the parapet with HMR&C, one appearing to be seeking avoiding IHT. The latter being that the latter's insurance premiums are too excessively high, and therefore need to be avoided.
Whilst not giving any final advice, the solicitor did briefly mention the advantages of octopus investments, particularly if invested for two years or more.
Are trusts now unfashionable, and what are octopus investments, and are they viable investments to help with IHT planning.
Whilst not giving any final advice, the solicitor did briefly mention the advantages of octopus investments, particularly if invested for two years or more.
Are trusts now unfashionable, and what are octopus investments, and are they viable investments to help with IHT planning.
I suspect he is referring to VCTs, where Octupus are an example of a provider.
It isn't something I have used but they are basically tax efficient but high risk investments in small businesses, similar to EIS. So high opportunity for growth, much of the downside risk can be offset by tax savings, but it is hard to get your money out unless and until the companies are sold. General advice I've seen is to consider using them if you have spare income once your other forms of saving allowances have been used up.
I am not sure whether the businesses invested in would qualify for relief from IHT. I guess you could check and confirm that before making any investment.
It isn't something I have used but they are basically tax efficient but high risk investments in small businesses, similar to EIS. So high opportunity for growth, much of the downside risk can be offset by tax savings, but it is hard to get your money out unless and until the companies are sold. General advice I've seen is to consider using them if you have spare income once your other forms of saving allowances have been used up.
I am not sure whether the businesses invested in would qualify for relief from IHT. I guess you could check and confirm that before making any investment.
Octopus are a decent provider of tax efficient schemes that if done correctly can benefit from Business Property Relief, exemption to IHT after 2 years. Not all their schemes do have this advantage. They’re generally quite expensive investments and higher risk in nature.
Trusts are legal and if done for the correct reasons do not flag to HMRC- that’s utter crap. They can offer many IHT advantages, but also things like asset protection in case of family divorce. They are a very useful tool in planning.
As far as his comment as regards Life Cover- again utter crap. The typical break even for someone in their 60s needs you to live way past 100 before you’ve paid in as much as you get out. With no investment risk and while continuing to have full control of your assets. Crunch the numbers on a guaranteed whole of life to see what I mean.
Speak to a competent adviser and let this solicitor stick to selling houses.
Trusts are legal and if done for the correct reasons do not flag to HMRC- that’s utter crap. They can offer many IHT advantages, but also things like asset protection in case of family divorce. They are a very useful tool in planning.
As far as his comment as regards Life Cover- again utter crap. The typical break even for someone in their 60s needs you to live way past 100 before you’ve paid in as much as you get out. With no investment risk and while continuing to have full control of your assets. Crunch the numbers on a guaranteed whole of life to see what I mean.
Speak to a competent adviser and let this solicitor stick to selling houses.
All trusts must now formally register their details with HMRC. It's no longer sufficient for the Trustees to do a tax return and pay their taxes. As such, HMRC knows exactly who's interested in and who's benefitting from every trust. That's not to say trusts can't be useful - just that there's increasing regulation.
The biggest potential issue with tax planning and trusts is the ease with which future tax increases can target the trust assets. There have already been significant changes through the last decade or so, with 10-yearly IHT charges and also a flat 45% rate of income tax.
The biggest potential issue with tax planning and trusts is the ease with which future tax increases can target the trust assets. There have already been significant changes through the last decade or so, with 10-yearly IHT charges and also a flat 45% rate of income tax.
There are various shares in public limited companies in the Alternative Investment Market (AIM) which are eligible for exemption from inheritance tax when passed on, providing certain criteria are met. The idea is that it allows companies which are largely family owned and run to pass them on without a crippling inheritance tax bill. I believe Octopus use these (probably amongst other methods), as the shares are not restricted to the families that run the companies. As far as I'm aware, the shares must be held for two years before death to qualify.
If you Google Octopus, AIM, IHT you should find them. Add Telegraph to that, and you will find the Daily Telegraph articles from a couple of years ago which describe them.
You can do the same outside of companies like Octopus, but you have to keep your research up to date as the companies in which the shares are held can stop qualifying, and your inheritors could get left with a big tax bill.
If you Google Octopus, AIM, IHT you should find them. Add Telegraph to that, and you will find the Daily Telegraph articles from a couple of years ago which describe them.
You can do the same outside of companies like Octopus, but you have to keep your research up to date as the companies in which the shares are held can stop qualifying, and your inheritors could get left with a big tax bill.
rockin said:
All trusts must now formally register their details with HMRC. It's no longer sufficient for the Trustees to do a tax return and pay their taxes. As such, HMRC knows exactly who's interested in and who's benefitting from every trust. That's not to say trusts can't be useful - just that there's increasing regulation.
The biggest potential issue with tax planning and trusts is the ease with which future tax increases can target the trust assets. There have already been significant changes through the last decade or so, with 10-yearly IHT charges and also a flat 45% rate of income tax.
Only if a trust pays, or owes, tax does it need to be registered. As such there are perfectly legal ways of not needing to register. So HMRC will only know what it needs to know and nothing more. The biggest potential issue with tax planning and trusts is the ease with which future tax increases can target the trust assets. There have already been significant changes through the last decade or so, with 10-yearly IHT charges and also a flat 45% rate of income tax.
ellroy said:
Only if a trust pays, or owes, tax does it need to be registered. As such there are perfectly legal ways of not needing to register. So HMRC will only know what it needs to know and nothing more.
Sounds like a generous helping of "smoke 'n' mirrors" to generate fees for the adviser.ellroy said:
Sound like you don’t know what you’re talking about. Fixed fees are available and no commissions available anymore?
Lets start with something simple, say £1m of life assurance written offshore in a new trust. How much would you pocket from running one of those off the photocopier? And what "ongoing" fees and charges each year?There’d be no ongoing fees at all.
It’s a fixed fee for the work to set it up, any commission generated, life cover being one of the very few things that pay it, being passed back into the product to the benefit of the client, and there’s no need for the trust to register with HMRC.
Want to carry on digging holes?
It’s a fixed fee for the work to set it up, any commission generated, life cover being one of the very few things that pay it, being passed back into the product to the benefit of the client, and there’s no need for the trust to register with HMRC.
Want to carry on digging holes?
For a full review of protection policies to establish need, implementation of any said need, to include appropriate trust, to include liasing with beneficiaries as regards AML requirements, liasing with providers, typically at least 3 in case of WoL, and ensuring medical requirements across all are done efficiently for the client. For that, along with our PI requirements and ongoing FCA registration, rates and admin? £2.5k.
But hey you know best.
But hey you know best.
ellroy said:
For a full review of protection policies to establish need, implementation of any said need, to include appropriate trust, to include liasing with beneficiaries as regards AML requirements, liasing with providers, typically at least 3 in case of WoL, and ensuring medical requirements across all are done efficiently for the client. For that, along with our PI requirements and ongoing FCA registration, rates and admin? £2.5k.
But hey you know best.
£2.5k could represent excellent value here, but what does your company do with the colossal commissions still payable on WoL insurance policies?But hey you know best.
I assume you have these set up with no indemnity or non-indemnity based initial commission and no ongoing annual commission in order to reduce the premiums. If so, then you are talking my language. If not, then not.
Also, for clarity for other readers:
- Full review to establish need = Fact find
- Implementation = Fill out the form for the provider to implement
- Include appropriate trust = Select the appropriate trust and fill out the form to instruct the provider to establish it
- Liaise with beneficiaries re AML = ??? AML checks are only required on the policy holder(s)/setltor(s), i.e. the client(s), not the beneficiaries IIRC
- Liaising with 3 providers = making 3 phone calls
- Ensuring medical requirements are efficient = Client discloses medical history and provider requests medical assessment or Moratorium (how do you make a statement of the truth more 'efficient' without lying and invalidating the policy?)
- PI and FCA requirements = The cost of doing business
I do not mean to belittle the service you provide, I just don't like it when anyone implies they are doing more than they actually are.
If someone cannot work out the level of cover they need for an IHT bill, cannot use a price comparison website, cannot understand well worded descriptions of which type of trust to use and wants help filling in the forms then the service you offer can be invaluable.
My point is that what you do is explain this, provide reassurance and use your experience to select the provider and assist with the paperwork. Equally, you save people time. These are all highly commendable services that many people are happy to pay for. You don't have to pad it out with jargon and over representation of your role in the chain.
I'll be interested to hear about the commission aspect.
ellroy said:
All comm goes back to the client. Julian, we take none.
In that case you are offering a clean, transparent and valuable service at a competitive cost. What I would do in your position is equally highlight what you do (and do not do) in the same clear and transparent way. It is not exactly a secret that people do not trust financial advisers and there are (very) many good reasons for this.
Simply saying 'I will use my knowledge, experience and qualifications to take the headache away from you, work out your needs and requirements, advise you on suitable providers and trusts, obtain commission free quotes, then complete the paperwork with you for submission to the provider for a fee of £x' would be very refreshing for most people.
It is when financial advisers claim they are doing something that they are absolutely not doing (managing your money - no, they are recommending a fund/investment manager that does this, or implementing something - no, they are sending a form to a provider that will implement this) that bugs me.
Thanks GliderRider for your advice "Google Octopus, AIM, IHT you should find them. Add Telegraph to that, and you will find that Daily Telegraph articles from a couple of years ago which describe them" interesting read.
My situation is that all wealth is tied up in rental properties, with rental payments presently having to pay off a building project financial loan, therefore limited liquid assets to invest etc.
Each of the financial advisors i have met, including solicitors, everyone has had their own pet product that they want to sale, either with life insurance, offshore trusts, high risk investments scheme, Octopus etc. etc.
From reading all of your posts, i need to knock on a few more doors for financial and legal advice.
My situation is that all wealth is tied up in rental properties, with rental payments presently having to pay off a building project financial loan, therefore limited liquid assets to invest etc.
Each of the financial advisors i have met, including solicitors, everyone has had their own pet product that they want to sale, either with life insurance, offshore trusts, high risk investments scheme, Octopus etc. etc.
From reading all of your posts, i need to knock on a few more doors for financial and legal advice.
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