Cashing in investment bond held in flexible trust

DT2001

I thought I had posted an update on this! The LV trust has passed 7 years. Written as 11/18 when actually 1/18.

Will get accountant to advise when information back from LV and look at Aviva bond.

There definitely were actuarial valuations somewhere in the file splitting the original premiums 

DT2001

Canada Life onshore bond
£61k into bond (schedule 01-061) in 7/13 - 2 funds 
£40k into bond (schedule 02-061) in 1/14 - 1 new fund
£60k out 12/17 cancelling an equal % of units across all 3 funds 
Value £85 1/25
CL state the £60k was processed by surrendering units across all 61 segments 
IFA replied on same day ‘a partial surrender and not split across all segments. There are still 61 full segments on this plan’

DT2001

We are checking with the DGT with CanLife Int if the bond can be split into two funds and a cautious fund used for the next 10 years of ‘tax free’ 5% p.a. returns and the balance in a higher risk investment. 

The ongoing fees appear incorrect. With the move to the latest IFA the ongoing fees were agreed at 0.5% however this wasn’t updated on this policy which was fixed at 0.75% of the original value. So hoping to recover some of the ‘lost’ capital.

DT2001

poseidon1 said:

DT2001 said:

The meeting to discuss all the bonds was held yesterday and I was asked to attend (probably as a result of all of your probing questions). 

The facts, which do differ in parts to those I originally set out, are

2 onshore bonds inside estate.
Canada Life started 12 years ago. After 4 years 60% of the original premium (45% of its then value) was withdrawn and put into the LV bond.
The only paperwork relating to this shows units cancelled do we need to clarify with Canada Life if this considered a part surrender or encashment of a segment?
It is split across 3 funds and growing steadily. 

SL with profits fund been in place for 25 years. No withdrawals. Regular small bonuses (2.5% last year). Previous IFA reports do not include final bonus which equals 25% of total (nice surprise on going through all the papers in the file last night)

4 outside 
2 DGT offshore - both in place for 10 years with monthly payments to settlor. They are 15-20% worth less than the original premium. Trustees looking to change funds to medium risk as income withdrawals cannot be altered and in cautious funds capital will be eroded further. 

LV - Performance as dunstonh suggested is okay for its asset mix. Trustees will contact LV as suggested by poseidon1 to check the what if encashed implication. The capital is not needed by the settlor (I know it isn’t theirs legally) so will probably be passed to the beneficiaries to invest more appropriately to their individual circumstances.
Aviva - Flexible Gift trust - taken out in 1999. A with profits sub fund originally with FP. One £5k withdrawal recently paid to settlor for immediate payment to one of the beneficiaries to help with a roof replacement.

Thank you all for your pointers, are there any other suggestions for further research 

 

It should be noted his Canada Life and SL bonds are potentially liable to income tax on the accrued gains on death. No such liabilty would arise on ISAs or indeed on General investment accounts. Therefore there may be a case for encashments of the the Canada Life bond within his BR headroom ( after making the above enquiry), and using the proceeds to fund ISAs in the years to come. Probably less scope for this with the SL Bond if its an 'old school' non unitised with profit  but still worth enquirying into options there.

Finally, executors for the father may have a bit of a task dealing with reporting  for his estate when the time comes, given all these 'moving parts'.

I want to line up as many relevant questions before engaging with an appropriately qualified accountant. Are you suggesting partial encashment over time to fund ISAs from the Canada Life bond?  Are you presuming the SL bond has to be encashed/surrendered all at one time?

 I can ask the accountant about utilising a GIA, annual CGT allowances and savings. The simpler we can get the finances whilst still achieving the original income goals the better in the long run for those having to deal with it all.

poseidon1

Yes indeed, it would seem to make sense to encash the personally held  CL bond overtime as tax efficiently as possible, in order to remove the possibility of residual income tax liabilities on future gains crystallising on death.

ISAs are the ideal home for those monies since they are not only income tax  and CGT free at point of death, but remain so for up to 3 years post death during the currency of the estate administration period ( a useful additional benefit for the estate beneficiaries). GIAs have the benefit of receiving a CGT free uplift to market value on death. In the interim there is of course the opportunity to realise tax free gains at £3000 annually.

However given that the original 61 CL policies appear to remain in force (following the prior pro rata encashment of segments), full surrender of policies requires care to avoid excessive chargeable event gains giving rise to unnecessary income tax liabilities.
The tax regime for investment bonds has undergone a number of legislative changes over the years, especially with regard to the interaction of bond gains with personal allowances, personal savings allowances and dividend allowance and can now result in quite complex calculations in full surrender situations.

Examples of this are shown in the Aberdeen technical notes below under the Top Slice Relief heading -

https://techzone.aberdeenadviser.com/public/investment/Taxation-of-bonds#anchor_3

The proprietary software used by accountants to submit personal tax returns incorporate the ability to calculate chargeable event gains income tax outcomes on a 'what if ' basis, so engaging an accountant to help optimise future bond encashments makes sense.

Finally with regard to the Standard Life bond, if it is not a unitised with profit policy, there may be no option other than a full surrender which will of course trigger the final terminal bonus. However it seems to be a relatively modest sized policy compared to other bonds, so could be the start of a tidying up excercise in the current tax year assuming the total gain does not jeopardise the policy holder's current basic rate status. You could ask SL for an estimated chargeable event gain on this basis, and an accountant run the top slicing relief calulation thereon,