Assignment of investment bonds by trustees to non-residents

 In Finance & Investments

Disclaimer: LawSkills provides training for the legal industry and does not provide legal advice to members of the public. For help or guidance please seek the services of a qualified practitioner.

Information in this article should not be taken or relied upon as personal financial advice. Any individual requiring information or advice on their own specific circumstances or on their own account should contact a suitably qualified professional.

Assignment of investment bonds by trustees

Mark Potter of Ethos Financial Management Ltd answers a typical question concerning the Trustees of a typical nil rate band (NRB) discretionary trust set up under the Will who are minded to wind up the trust.

Free LawSkills Newsletter

If you like our articles, why not subscribe to our free monthly newsletter with regular Private Client news, views and advice from leading legal minds. It's quick, easy and you can unsubscribe at any time if you no longer want to receive it.

Sign Up Now

Question

The Trustees of a typical nil rate band (NRB) discretionary trust set up under the Will are minded to wind up the trust by appointing everything out to two of the beneficiaries – the daughters of the deceased – as tax-efficiently as possible.

The testator and her husband were UK domiciled and UK resident, as are the trustees. The trust assets include UK investment bonds on which the couple’s non-resident daughters were named as the lives assured.

The total value of the trust fund is just below the NRB so Inheritance Tax is not an issue but the bonds are showing gains. Do you think that there is any merit in assigning the bonds to the daughters before surrender?

Answer

The gains within a life assurance bond are not taxable until a chargeable event as defined in income tax law occurs. This might for example be a death claim, surrender or assignment. However assignment out of a trust to a beneficiary to settle rights under the terms of the trust is not treated by HMRC as being “for money’s worth”, so at the point of assignment, no tax charge will arise and there is no issue for the trustees. Indeed, it is often this very fact that prompts financial advisers to recommend the use of offshore life assurance bonds as trust assets.

A chargeable event will occur when the beneficiary cashes in the bond at some stage but the tax liability will then be the beneficiary’s. If they are not resident for tax purposes in the UK in the year of encashment, no UK tax liability will arise, bearing in mind that chargeable event gains are taxed under the Income Tax rules, so all that applies about non-residence in the Income Tax context will apply in this situation.

There may be a potential tax liability for the daughters under the domestic tax regimes of their home country, but that matter should be discussed by each of them with a local tax adviser, if they feel it would be necessary.

Free LawSkills Newsletter

If you like our articles, why not subscribe to our free monthly newsletter with regular Private Client news, views and advice from leading legal minds. It's quick, easy and you can unsubscribe at any time if you no longer want to receive it.

Sign Up Now
Recent Posts