Offshore bond inherited from father - questions about tax, gifting etc.

Strawbs_fan

Hi, 

My dad died earlier this year and left his estate to me and my sister 50/50. We're both executors and have probate. His estate was below the IHT threshold (with spousal exemption with my mum who died a few years ago) and consists of his house which is about to be sold, some savings and a cash ISA. All quite straightforward to sort out. 

He also had an offshore bond with St James Place with a current value of around £60K and we're wondering what to do with this. 

Dad took it out in 2002 for £25K (so I assume 25 segments?), and he's withdrawn some over the years. 

We understand that cashing this in has tax implications (we are both higher rate tax payers).  My sister and I each have a child at university who we're supporting financially (late teens/early 20s and doing small bits of holiday work) and having done some reading we're wondering whether we can gift the bond to them (understanding this would be a PET for IHT which hopefully won't be an issue as we're in our late 40s), which they can then encash over the next two or three tax years and pay little or minimal tax on.     

We're planning to get some financial and tax advice but would really value any guidance or advice you could provide to help with this. Is it this 'simple'? is there anything we're missing or things we need to consider, 

Thanks very much. 

poseidon1

Strawbs_fan said:

Hi, 

My dad died earlier this year and left his estate to me and my sister 50/50. We're both executors and have probate. His estate was below the IHT threshold (with spousal exemption with my mum who died a few years ago) and consists of his house which is about to be sold, some savings and a cash ISA. All quite straightforward to sort out. 

He also had an offshore bond with St James Place with a current value of around £60K and we're wondering what to do with this. 

Dad took it out in 2002 for £25K (so I assume 25 segments?), and he's withdrawn some over the years. 

We understand that cashing this in has tax implications (we are both higher rate tax payers).  My sister and I each have a child at university who we're supporting financially (late teens/early 20s and doing small bits of holiday work) and having done some reading we're wondering whether we can gift the bond to them (understanding this would be a PET for IHT which hopefully won't be an issue as we're in our late 40s), which they can then encash over the next two or three tax years and pay little or minimal tax on.     

We're planning to get some financial and tax advice but would really value any guidance or advice you could provide to help with this. Is it this 'simple'? is there anything we're missing or things we need to consider, 

Thanks very much. 

Is this question by any chance related to your previous offshore bond trust query in the thread below?

https://forums.moneysavingexpert.com/discussion/6635803/offshore-bond-inherited-from-father-questions-about-tax-gifting-etc#latest

Just a little confused that here  your mother is deceased but alive  ( with dementia) in that prior post, as well as being a trustee of the bond trust raised in that post.

Some clarity would be appreciated on the relevant facts.

masonic

This was the previous thread: https://forums.moneysavingexpert.com/discussion/6549119/discretionary-loan-trust-query-about-distributing-assets-and-tax

It seems like it could have been the same £100k Offshore bond with £40k having been removed by the mother and distributed net of any tax within the last year or so. It would be good to understand the apparent contradictions.

Strawbs_fan

Hi, 

Ah yes, sorry for that confusion. I changed some personal details in these posts (dates and gender of parents) as I was (probably unduly) worried it may make me identifiable and instead has made me seem a bit shady.  

The trust, and bonds within, is separate to this issue. And now that both of my parents have died we’re having to appoint new trustees and understand how we can manage it going forward.  

This query is about a separate offshore bond which isn’t in trust. 

Brie

Wouldn't gifting anything to your children be considered tax evasion?  
If so would this be possible by getting a deed of variation assigning a portion of the estate to the children and thus avoiding paying the higher rate of tax?
Or could the estate "cash in" the bonds and so not pay any tax as it's a below the IHT threshold? 
(I don't know, hence my questions)

Strawbs_fan

masonic said:

This was the previous thread: https://forums.moneysavingexpert.com/discussion/6549119/discretionary-loan-trust-query-about-distributing-assets-and-tax

It seems like it could have been the same £100k Offshore bond with £40k having been removed by the mother and distributed net of any tax within the last year or so. It would be good to understand the apparent contradictions.

Hi,

it’s not the same bond. That one’s in the trust and we’re trying to find out how to manage that. Getting information from STJP is proving really difficult, hence trying to get some advice from here so that we can ask them some more specific questions. 

This bond is not in trust, it was individually held by my dad. 

poseidon1

Strawbs_fan said:

Hi, 

Ah yes, sorry for that confusion. I changed some personal details in these posts (dates and gender of parents) as I was (probably unduly) worried it may make me identifiable and instead has made me seem a bit shady.  

The trust, and bonds within, is separate to this issue. And now that both of my parents have died we’re having to appoint new trustees and understand how we can manage it going forward.  

This query is about a separate offshore bond which isn’t in trust. 

Clarification appreciated, especially the status of your mother!

As to the bond in question and assuming it also had lives assured in addition to your deceased father, you do have options to mitigate higher rate tax on future bond encashment.

Firstly you definitely do not want to encash it whilst it is still an undistributed estate asset, that would automatically trigger 45% tax on the chargeable gain on the estate, with no top slicing relief available (estates don't qualify for this).

Similarly as you point out, transferring to your personal ownership and encashing will trigger 40% tax (at least) since you say you are both already higher rate tax payers.

Best option which accords with your wishes, is for you and your sister to execute a deed of variation of your father's  will whereby the bond is deemed to have been left direct to your  respective children by your father. 

This bypasses you having to make personal PETs, so no IHT implications.

Are all grandchildren adults? If not, DOV to minor will create a bare trust for that child until they attain age 18.

Would suggest you get a solicitor to draft the DOV, to ensure you have no problem using it for the eventual bond assignments to the children.

poseidon1

Strawbs_fan said:

masonic said:

This was the previous thread: https://forums.moneysavingexpert.com/discussion/6549119/discretionary-loan-trust-query-about-distributing-assets-and-tax

It seems like it could have been the same £100k Offshore bond with £40k having been removed by the mother and distributed net of any tax within the last year or so. It would be good to understand the apparent contradictions.

Hi,

it’s not the same bond. That one’s in the trust and we’re trying to find out how to manage that. Getting information from STJP is proving really difficult, hence trying to get some advice from here so that we can ask them some more specific questions. 

This bond is not in trust, it was individually held by my dad. 

Seems to me the part of the bond not in the trust ( the remains of your  dad's original loan), the same consideration applies here also.

Your dad's loan is now in his estate which both you and your sister inherit outright. So all my comments above applies equally to that part of the 'trust bond'. You may want to get the solicitor to address this  by way of DOV if happy to push this bond across to respective children also.

As for the remaining   part of the bond in  the discretionary trust, well you have up to 2 years from father's death to decide what you as trustees ( assuming you are trustees ) wish to do. 

Again if you are happy to excercise your discretionary powers to appoint the bonds to your children, you are free to do so as long as grandchildren are included in the discretionary class of beneficiaries.
A trust deed would need to be drawn up followed by the bond assignment document ( two separate activities) , so yet another task for a STEP qualified solicitor. If trust broken within  the 2 years, no trust IHT consequences or reporting for the small amount involved.

As for waiting on STJP to come up with a solution, do they purport to be able to give you legal and tax advice and draft appropriate enabling legal documents? They might be able to provide a pro forma deed of Appointment for the trust , but from what you have said if you have had no tangible help to date, I wouldn't hold my breath.  However , they should at least be able to provide a supply of bond assignment documents if you press them.

Strawbs_fan

poseidon1 said:

Strawbs_fan said:

masonic said:

This was the previous thread: https://forums.moneysavingexpert.com/discussion/6549119/discretionary-loan-trust-query-about-distributing-assets-and-tax

It seems like it could have been the same £100k Offshore bond with £40k having been removed by the mother and distributed net of any tax within the last year or so. It would be good to understand the apparent contradictions.

Hi,

it’s not the same bond. That one’s in the trust and we’re trying to find out how to manage that. Getting information from STJP is proving really difficult, hence trying to get some advice from here so that we can ask them some more specific questions. 

This bond is not in trust, it was individually held by my dad. 

Seems to me the part of the bond not in the trust ( the remains of your  dad's original loan), the same consideration applies here also.

Your dad's loan is now in his estate which both you and your sister inherit outright. So all my comments above applies equally to that part of the 'trust bond'. You may want to get the solicitor to address this  by way of DOV if happy to push this bond across to respective children also.

As for the remaining   part of the bond in  the discretionary trust, well you have up to 2 years from father's death to decide what you as trustees ( assuming you are trustees ) wish to do. 

Again if you are happy to excercise your discretionary powers to appoint the bonds to your children, you are free to do so as long as grandchildren are included in the discretionary class of beneficiaries.
A trust deed would need to be drawn up followed by the bond assignment document ( two separate activities) , so yet another task for a STEP qualified solicitor. If trust broken within  the 2 years, no trust IHT consequences or reporting for the small amount involved.

As for waiting on STJP to come up with a solution, do they purport to be able to give you legal and tax advice and draft appropriate enabling legal documents? They might be able to provide a pro forma deed of Appointment for the trust , but from what you have said if you have had no tangible help to date, I wouldn't hold my breath.  However , they should at least be able to provide a supply of bond assignment documents if you press them.

Hi, thanks so much, this is really helpful. I’ll speak to StJP about this and also get in contact with my solicitor.