Premium Bond Syndicate Agreement

isofa

As mentioned earlier, surely far better for example, if the group has 10K to "invest" in PBs, to split that up and each member buy that amount in PBs and have an agreement to share any wins. That way when people drift apart, move, die etc, the agreement changes are simpler because everyone holds their stake. The risks of someone having a big win and not sharing are identical to if just one person holds the bonds.

Also if you want to "invest" more than 30K, you couldn't do it with one person holding the bonds anyway.

The odds are identical whether having them as a group or individual.

bowlhead99

andybrock wrote: »

Deleted post removed by Forum Team

Hi,

So, based on the comments from others which said that NS&I did not accommodate trust agreements and that premium bonds syndicates may not be lawful because their own terms and conditions would conflict with this, you (at first glance) appear to have searched on the internet and found a reputable group of professionals who are offering some advice about it. Good stuff.

You are presenting the quote above as a straight quote from an authoritative source, head of ACCA Tax, no less.

However, I just wanted to call you out on this. Basically what you appear to have done is found an article where some of the above text appeared on a Moneysupermarket forum post in a reply to a poster who was asking whether he could set up a premium bond syndicate and what the tax implications would be.

The one response to that was a simple cut and paste job, described as 'off the internet' , being the text from a June 2005 Daily Mail article linked here which was quoting some previous ACCA advice in relation to the National Lottery. The article was quoted in full on the moneysupermarket forum.

However, you have removed the first paragraph talking about it being in relation to the National Lottery. Then, you have replaced the end of the original paragraph which said, "...It is also a good idea to set out the rules of the syndicate. For example, the names of the group members, the appointed manager's name and how the numbers are selected so that disputes after a big win can be avoided"

with "...the appointed manager's name and how and when the bonds will be purchased. "

The original press release which the Daily Mail / This is Money were quoting was published in December 2001 in an ACCA press release talking about potential pitfalls of a Christmas lottery win, and is available here . It was not at all in relation to any type of investment bonds, retail bonds, premium bonds or other financial instruments being held on behalf of others - though I can see why you would draw a parallel, as for other financial instruments which can be held as nominee on behalf of others, the advice is sound. But anything about that quote having a connection to 'bonds' is made up by you.

Feel free to tell us that you did not make up a quote and attribute it to a reputable tax professional, inserted in the middle of an article containing genuine quotes, to try and refute the comments of the others on this forum. We are all ears. :cool:

Basically NS&I's terms and conditions state, inter alia,

Who may purchase and hold Bonds
19. Individuals Individuals of at least 16 years of age may, for their own benefit, purchase and hold Bonds in their own name.
20. Attorneys An individual of at least 16 years of age may also purchase Bonds in the name of another such individual where acting under a valid power of attorney.
21. Children Bonds may be purchased on behalf of a child under 16 years of age in accordance with paragraphs 64 to 71.
22. Deputies A person who is legally entitled to make investments on behalf of a person who both lacks capacity and is at least 16 years of age may purchase Bonds on behalf of, and in the name of, such person.
23. Bankrupts Bonds may not be held or purchased by a person who is an undischarged bankrupt.
62. Bonds are not transferable at any time. Following the death of a Bond holder, the value of the Bonds will form part of the deceased Bond holder’s estate.

NS&I have these various conditions because there are quite rightly some caps on amount that they allow a person to have invested in a tax free savings/investment product and restrictions on who can hold such a product.

For example, if you are old enough, you can go and buy bonds for yourself in your name. If I give you an appropriate power of attorney, because I feel like it or because I have lost my marbles and lack capacity and you are authorised to buy my investments for this reason, you can go and buy some bonds for me, in my name. If you are the parent or guardian or grandparent of someone under 16, you can buy some bonds for them, in their name, and the holding can be managed by the parent or guardian.

What you can't do is hold bonds in your name for someone else, or for multiple people.

If bond 'syndicates' were recognised by NS&I or even tacitly acknowledged, it would open the door for you to hold my bonds and allow me to take the income while I claim to legally hold no assets as an undischarged bankrupt. Or, it could allow you, your wife, brother, mother and son to run a nominee structure or syndicate with total capital of £150,000 and designate that you receive (e.g.) 45% of the income.

The latter would give you access, beneficially, to a tax-free expected return exceeding the expected return generated by the amount that is capped by government and NS&I, while having the certainty that the capital would not be at risk (due to government underwriting).

It may of course only give you £25 or even zero in a year, but it still potentially allows you to receive £12m tax free if you win every prize in the year, and certainly the average return by using syndicates and nominee holdings could on average set you up with an ongoing income in excess of the expected ongoing income off £30k. The only way for NS&I to ensure people do not abuse the system is to have terms and conditions and enforce them, to only issue bonds to named holders and not allow transfers or for you to hold bonds for others.

61. We can repay Bonds immediately, without needing an application to cash in, if:
(a) we reasonably think any of the persons named in the application have provided false information;
(b) we reasonably suspect that the Bonds are being held for an illegal purpose;
(c) the applicant who applied to purchase the Bonds, was not entitled to purchase them, or the Bond holder is not entitled to hold them;
(d) the Bond holder’s holding exceeds the maximum allowable (see paragraph 44) (to the extent that the holding exceeds the maximum);
(e) the Bond holder fails to comply, in a material manner, with the terms or conditions for holding the Bonds; or
(f) we have any other valid reason to do so

It is feasible that if you set up a syndicate, which of course will not fit one of the 'who may purchase Bonds' criteria in T&C 19-23, NS&I could instantly redeem the bonds on the basis of you hitting every one of a) through e) above. If you were going to go ahead and do it anyway despite the advice on here, you would at least want to put some terms and conditions in your agreement that says who gets the redemption proceeds if they undergo compulsory redemption, prizes withheld, etc.

Don't get me wrong, some types of assets and financial instruments can of course be held by you as nominee for the benefit of another or in bare trust, or for the benefit of through a partnership agreement (e.g. investment club). If you were writing an agreement for a premium bond syndicate you would need to mix language from those sort of agreements to fit your needs. No doubt you can find online some standard wording for lottery syndicates, Proshares have a sample investment club agreement (though you will have to pay them for their intellectual property) but it would need properly tailoring for the situation.

And when you take a draft to a solicitor and ask whether it fits the situation, be prepared for them to say that anything they write to enable you a person or group to hold premium bonds beneficially on behalf of others is a direct contradiction to the terms set by NS&I who issue the bonds and can recall them.

Certain investment products contain clauses about non-recognition of trust agreements, effectively the investment manager deals with you as principal and does not really care and will not be accountable to anyone sitting behind your agreement. I have dealt with many private investment funds where this is the case. However in those cases they may still want to know that the trust agreements exist. In NS&I's case they would certainly want to know, because a holding bought by or for a syndicate is outside their T&Cs and they could use it to redeem the bonds whenever they like.

Proceed at your peril. I agree with the others who say it is a recipe for legal wranglings if anything goes wrong.

You quoted HMRC earlier saying "...same principles apply to premium bonds syndicates and other similar arrangements.". This is from HMRC's 'statement of practice' notes on Inheritance Tax and Estate Duty. But is absolutely not an endorsement of setting one up. It is telling you the general principles under which they tax things like pools and Lottery syndicates for IHT purposes when the agreements have been set up correctly.

Specifically, they don't want to you to ask them about whether your syndicate agreement works, they will give you no advice, they are just setting out general principles on how they would treat it if you had set up an existing enforceable arrangement which had been structured correctly and generated some proceeds which were considered to belong beneficially to others. The giving of those proceeds to someone else, when they were not yours in the first place, is not a potentially chargeable 'gift' for IHT. If you've structured the agreement correctly.

Only a solicitor at law could advise whether a deed of agreement between you is going to meet your needs as an "existing enforceable arrangement" - and of course if the bond issuer can redeem the bonds on a Monday because you were considered to be skirting the edge of the rules, then by Tuesday's draw your numbers are no longer in the draw for them to come up, so Player 2, 3 and 4 can't "enforce" receipt of a share of the proceeds predicted in their tea leaves on Sunday.

This is not an issue with Lottery as Camelot encourages people to buy as syndicates because they want to sell more of them. That's the opposite of NS&I's goal, who do want to access cheap long-term finance from the public at large but have been mandated with restricting the sale of tax free products.

Hope this helps. If someone else is running it, my advice would be to not get involved. If it's you that wants to run it, be prepared for your 'trusted friend or relative' who is looking for an excuse to to cash out instantly and strike out the agreement, to claim they have been missold because they 'only just found out' that NS&I don't approve of syndicates or nominee relationships for premium bonds.

andybrock

Wow.:eek:

You have a lot of spare time on your hands Bowlhead.

Wasn't misleading anybody on this issue-just simplifying the matter-the article is in the public domain for anyone to read-just as you did.
The same tax implications apply as you state-that why bonds was added to the quote-by adding bonds instead of lottery it makes no difference whatsoever-the point I was making.

As I earlier stated and many times after I was enquiring into the wording of forming an agreement,not the validity of forming a syndicate.

All parties would be aware that the agreement would be formed outside of any of the NSI t+c's-again I've stated this many a time.

As many syndicates involving premium bonds are already up and running with no issues I think you may be looking too deeply into the issue.

Now if you could draw up a draft agreement that would be really useful....................;)

bowlhead99

andybrock wrote: »

The same tax implications apply as you state-that why bonds was added to the quote-by adding bonds instead of lottery it makes no difference whatsoever-the point I was making.

Interesting that you would make a point about the situations being kind of equivalent, by changing someone else's quote on a different topic, but then doing it without telling anyone you had changed the quote so it looks like you are stating facts rather than comparing your situation to a different fact. Your point might simply be that one scenario is analogous to another. However, all changing the quote has done is proved that it is possible for someone to edit text to become other text and for it to still read as a sensible-sounding English phrase.

The made-up quote was (twelve years ago) originally sound advice from an accounting professional in relation to how to operate your Lotto syndicate, an activity the public is encouraged to do by the product provider and particularly around the time of well publicised and occasionally super-sized jackpots.

Now it has been manipulated to come across as legitimate advice in relation to a syndicate constructed to acquire premium bonds; when in fact the accounting professional would never have given the advice in that context because syndicates are expressly not permitted, by the product provider, to acquire any bonds.

My post was just to help others who find this via Google et al, and are potentially mis-led to think that the head of ACCA tax suggests that this is normal practice and you just need an agreement that lists the expected method and projected date of purchase of the bonds and you will be fine.

As I earlier stated and many times after I was enquiring into the wording of forming an agreement,not the validity of forming a syndicate.

Hopefully my comments have given further insight into things you might like to consider when constructing a well worded and valid agreement for your invalid syndicate.

As many syndicates involving premium bonds are already up and running with no issues I think you may be looking too deeply into the issue.

If I'm contemplating making any investment or contractual financial arrangement, I would look deeply into the issue. Your mileage may vary.

This holds doubly true if I were responsible for actually writing the agreement. If I wanted to seek free advice on the internet from people I wouldn't expect them to look deeply into the issue as it is not their issue and they have no skin in the game. Still, it would be nice if they did.

I wouldn't expect 'them' (speaking for myself...) to actually help out writing the agreement for an anonymous stranger unless I were paying say £300+ p.h. and capping their liability to < £1...

You have a lot of spare time on your hands Bowlhead.

Quite possibly. To be honest I was trying to cut back / cut off my posting here but after only a couple of days your deliberate misquote and dismissive attitude towards the other helpful posters gave me the opportunity for yet another xkcd386 moment.

Good luck with your misadventure. :rotfl:

andybrock

Good luck with your adventure. :rotfl:


Sorted that for you.;)

Thanks to everyone who has posted useful and positive information which I can take foward.

I've removed my post earlier due to Bowlheads accusations of misleading people which I never intended to do.

le_loup

It wouldn't hurt for you send your thanks to Bowlhead for staying up late to try to prevent you from making a serious error in your life.
But, hey! What's it to do with me?

robatwork

bowlhead please don't stop posting on this forum and informing the misinformed and informing the underinformed (of which I am one)