Life Assurance in Estate Planning for UK ClientsSTEP Benelux Lunch & Learn

January 2016

Contents

1. Non-Dom (R)Evolution2. Draft Finance Bill 20163. Questions for Clients4. An Estate Planning Toolkit5. Closing Remarks

Non-Dom (R)EvolutionWhat has Changed?

Recent Evolution of Non-Dom Taxation

2007/8 and prior

UK resident non-domiciled individuals (RNDs) not subject to tax on overseas income or gains if not remitted to UK. Remittance basis in some cases automatic.

Recent Evolution of Non-Dom Taxation

2008/9

From 6 April 2008, Remittance Basis Charge (RBC) of £30,000 for RNDs resident in at least 7 of the previous 9 tax years.

Recent Evolution of Non-Dom Taxation

2012/13

New £50,000 charge for claimants who have been resident in the UK in at least 12 out of the previous 14 tax years.

Recent Evolution of Non-Dom Taxation

2015/16

RBC for longer-term RNDs increased to £60,000 if 12 of last 14 years. New £90,000 RBC if 17 years of last 20.

Recent Evolution of Non-Dom Taxation

2017/18

Further restrictions on the availability of the remittance basis planned. £90,000 RBC will become redundant.

Draft Finance Bill 2016The Future, and Opportunities using Life Policies

What’s in Store?

April 2017• No permanent non-dom status (15/20 rule)• Different rules for Arriving and Returning UK RNDs • Changes to trust taxation

= Deemed domicile for all purposes after 15 tax years = Six tax years abroad to lose deemed-dom status under

15/20 rule= Proposal that actual doms lose IHT domicile on later of:

- Six years of non-residence, and- Acquisition of foreign domicile of choice

Offshore Trusts

Settlor Interested Offshore Trusts• Those established while settlor was not deemed-dom

‘protected’• Taxed on benefits received• Could be made to apply to all non-doms

Returning RNDs • Treated as UK domiciled when UK resident • Offshore trust established while non-dom not

‘protected’ while UK resident

• New rules for Arriving RND:◦ RND settles £5m onto an offshore trust in 2014◦ Trust assets now worth £4m◦ Trust wound up in 2017 and assets appointed to the UK

RND◦ Tax payable on £4m?

A tax on losses and clean capital?

Offshore Trusts

• Consultation: ‘Reforms to the taxation of non-domiciles’ 30/09/2015 to 11/11/2015

• Draft Finance Bill 2016 clauses published

• Responses to Consultation due “early 2016” together with detail on income tax and capital gains tax measures

• Trust changes delayed to Finance Bill 2017?

Where Are We Now?

Questions for Clients

• Current domicile status?• Deemed domiciled under current rules?• How many years in the UK?• Split years? Breaks in residence?• Could you be deemed-dom from 6/4/2017?• Any offshore trusts?• Need for income in UK?• What is your plan for tax on worldwide income and gains?• Have you considered the possibility of worldwide estate being

subject to UK IHT at up to 40%?

Questions for Clients

Questions for Clients

• Client with estate worth £20m◦ 40% IHT on death◦ Potential liability of c.£8m (less

available NRB and reliefs)

Questions for Clients

• Client with estate worth £20m◦ 40% IHT on death◦ Potential liability of c.£8m (less available NRB and

reliefs)

Inheritance Tax likely to occupy larger part of UK planning

An Estate Planning ToolkitFor UK Domiciles and Future Deemed Domiciles

• Client objectives?◦ Provide for next

generation◦ Retain access to funds◦ Retain control◦ Reduce IHT exposure

◦ Have cake and eat it

Questions for Clients

An Estate Planning Toolkit

• Loan Trust

• Discounted Gift Trust

• Accumulation and Maintenance Plan

• Flexible Legacy Plan

Retaining Access

Loans & Discounts

• Tax-deferred income’of up to 5% per annum from life policy

• Return of original capital at any time• Gradual reduction in investor’s estate if income spent• Life policy growth is free from IHT for settlor• Beneficiaries can be changed

Loan Trust with a Life Policy: Advantages

• Immediate reduction in potential IHT liability at death• Initial investment not subject to (further) IHT after 7 years• Investment growth accumulates outside settlor’s estate• Tax-deferred‘income’of up to 5% per annum from life

policy

Discounted Gift Trust: Advantages

Retaining Control

Structured Gifts

Is control the preserve of the trust?

‘I want to make gifts to my children but am worried that they may spend the money unwisely.’

• Unlimited contributions• Structured access to benefits• Some of the advantages of pre-2006 trusts without

associated IHT disadvantages• Assets removed from estate for IHT and protected until

donee sufficiently mature

The Accumulation & Maintenance Plan

• Potentially Exempt Transfer for IHT• Donor controls beneficiary’s access• 5% withdrawals may support educational needs• No chargeable event on death during suppression period?• If beneficiary dies during suppression period, policy value

for IHT purposes may be discounted

The Accumulation & Maintenance Plan: Advantages

The Accumulation & Maintenance Plan

Legacy Planning

Policy 1£500,000

Policy 2£500,000

Policy 3£1,000,000

Policy 4£1,000,000

Policy 5£1,000,000

Granddaughter’s further education

Grandson’s further education

Daughter’s future retirement

Son’s future retirement

Gift to Daughter

Flexible Legacy Plan

Catering for Change

• Little or no IHT to pay at inception• Donor controls donee’s access• Flexibility to cope with changing circumstances• Control over investments/investment strategy• 5% withdrawals may support educational needs• No chargeable event on death during suppression period?• If beneficiary dies during suppression period, policy value

for IHT purposes may be discounted

Flexible Legacy Plan: Advantages

Closing Remarks

The New Face of UK Estate Planning

• Profound changes underway to taxation of UK RNDs• New challenges

• Types of RND

The New Face of UK Estate Planning

• Profound changes underway to taxation of UK RNDs• New challenges

• Types of RND (need to review position?)• Trust changes• Prospect of tax on worldwide income and gains• Prospect of inheritance tax on assets worldwide• Future changes to deemed-dom time frame?

The New Face of UK Estate Planning

• Profound changes underway to taxation of UK RNDs• New opportunities for Doms and Future Deemed Doms

• Loans• Discounted Gifts• Gifting with Retention of Control• Control in Changing Circumstances

The New Face of UK Estate Planning

• Profound changes underway to taxation of UK RNDs• Life assurance can still help with:

• Segregation issues• Preservation of clean capital• Remittance Basis Charge• Deferral• Access to capital• Simplification of reporting• Breadth of investments• Access to UK investments• WHT savings• Collateral for loans• Portability

 Disclaimer 

This presentation was produced by Lombard International Assurance S.A. Its content is intended for informational purposes only and is not to be construed as a solicitation or an offer to buy or sell any life assurance product. Neither is the information contained herein intended to constitute any form of legal, fiscal or investment advice. It should therefore only be used in conjunction with appropriate independent professional advice obtained from a suitable and qualified source. No representation or warranty, whether express or implied, is made in relation to the accuracy, completeness or reliability of the information contained herein, except with respect to information concerning Lombard International Assurance or its group companies. All information in this presentation is based on Lombard International Assurance’s understanding of the laws of Luxembourg and of any other jurisdiction referred to herein, as

in force at the date of this presentation. Lombard International Assurance is not liable for the consequences of any change in law or revenue practice arising at any time close to or after the date of the presentation. Lombard International Assurance S.A. is registered at 4 rue Lou Hemmer, L-1748 Luxembourg, Grand Duchy of Luxembourg, telephone +352 34 61 91-1. Lombard International Assurance is regulated by the Commissariat aux Assurances, the Luxembourg insurance regulator.

Copyright © 2015 Lombard International Assurance S.A. This presentation may not be reproduced in whole or in part or circulated to persons other than the attendees of this presentation without Lombard International Assurance’s prior written consent. 

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