Estate planning Business opportunities This is just for UK advisers - - PowerPoint PPT Presentation

This is just for UK advisers – it's not for use with clients.

Estate planning

Business opportunities

Important information

This presentation is for adviser use only and not for retail customers, and contains some forward thinking statements which should not be taken as fact. Information given is based on our current understanding, as at (04/18), of current taxation, legislation and HMRC practice, all of which are liable to change and subject to an individual’s own circumstances. Terms and conditions of products are available on request. The level of charges may change in the future. For webex presentations, the event may be recorded for training purposes. No reproduction, copy, transmission or amendment of this presentation may be made without the written permission from Prudential. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling, FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Any examples included are designed to represent a typical situation and are not related to any particular

• individual. They do not recommend that course of action.

Learning objectives

By the end of this session you will be able to understand:

Client needs generated from Estate Planning Planning

• pportunities

from different tax wrappers and trusts Investment considerations for trustees and how planning can help Resources and support available

Estate planning opportunities

Estate Planning Tax Retirement Planning Later Life Planning Legal State Connected Financially

Inheritance Rax Revenue

1 2 3 4 5 6 7 2021/22 2017/18

Projected increase of £1.2bn

£5.0bn £6.2bn

Inheritance tax - estimated number of estates

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

100% increase over 7 years 30,000 26,000 23,000 19,000 18,000 16,000 16,000 15,000

Trustee Act

Statutory Duty of Care Standard Investment Criteria Advice

The opportunity for you…

”Before exercising any power of investment a trustee must obtain and consider proper advice…”

The opportunity for you…

”the advice of a person who is reasonably believed by the trustees to be qualified to give it by his ability in and practical experience of financial and other matters relating to the proposed investments”

An IFA!!

Two objectives

Client Solicitor IFA Beneficiaries

Planning opportunities

Reduce income tax Reduce inheritance tax Access and Control Simplify finances

Income Tax

Bare Interest in posession Discretionary Settlor Interested

Four categories of trust for income tax purposes. Broadly, whoever gets the income pays the tax!

Capital Gains Tax

Bare Other

Tax and Collectives

No tax within fund

Gains

Trustee pays

• r

Beneficiary pays

Dividends

No tax within fund Trustee pays

• r

Beneficiary pays

Interest

No tax within fund Trustee pays

• r

Beneficiary pays

Bonds for Trustees?

No income tax until a chargeable event occurs Transferable without a chargeable event

Simple and flexible?

Meet Margaret

Margaret’s story

Margaret is a sprightly 80 year old, with 4 children and several grandchildren from new born to mid-twenties. Recently widowed in late 2017 when her second husband Victor died, she is looking to take charge of her finances. Already a widow when she married Victor she came to the second marriage asset poor but NRB rich. She’s in a good position to help her children and grandchildren when they need it. Estate and inheritance tax planning is high on her agenda.

Assets

Last Year Now

Home Bank Onshore Bond

£900,000 NRB NRB

Home Bank Onshore Bond Portfolio

NRB NRB NRB £2,065,000

Margaret’s IHT calculation

2018/19 Family home £1,500,000 AIM shares £15,000 Savings OEICs £80,000 Equity OEICs £220,000 Bank account £150,000 Onshore bond £100,000 Excess income £17,520 Asset value £2,082,520 Tax free amount £873,740 Taxable estate £1,208,780 IHT payable £483,512 Net estate £1,599,008 Main NRB £650,000 Add Residence NRB Add BPR relief £208,740 £15,000 RNRB reduction £41,260 Residence NRB (incl spouses) £208,740

RNRB Tapered

NRB Max 2

IHT Full Access

Margaret’s income

Last Year Now

PENSION £15,000 SAVINGS INCOME £500 PENSION £42,000 DIVIDEND INCOME £8,000 SAVINGS INCOME £2,500

Margaret’s Income Tax calculation

Non savings Savings paid gross Savings paid gross Dividends Pensions OEIC interest Bank interest Dividends Tax Due £42,000 £1,000 £1,500 £8,000 Personal allowance (£11,850) Non savings 20% £30,150 £6,030 Savings

0% £500

£0 20% £500 £1,500 £400 40% Dividends 0% £2,000 £0 7.5% £0 £0 32.5%

£6,000

£1,950 £8,380

Deed of Variation

Trust?

Victor’s NRB

Margaret’s estate swollen by Victor’s NRB

IHT due

Discretionary trust

Will If she dies

Access If Margaret dies Margaret and family

Hey presto, three NRBs

100% to Margaret Previous Marriage 2 x NRB on Margaret’s death Recently widowed Deed of variation for £325,000 1 x NRB inside discretionary will trust Margaret Reduced estate thanks to Deed

• f Variation

2 x NRB on Margaret’s death (thanks to previous marriage)

That’s £130,000 of IHT

Margaret’s Income Tax calculation

Non savings Savings paid gross Savings paid gross Dividends Pensions OEIC interest Bank interest Dividends Tax Due £42,000 £0 £1,400 £0 Personal allowance (£11,850) Non savings 20% £30,150 £6,030 Savings 0% £0 £1,000 £0 20% £400 £80 40% Dividends 0% £0 £0 32.5% £0 £0 £6,110

Post DoV IHT calculation

2018/19 Family home £1,500,000 Bank account £140,000 Onshore bond £100,000 Excess income £10,690 Asset value £1,750,690 Tax free amount £900,000 Taxable estate £850,690 IHT payable £340,276 Net estate £1,410,414 Main NRB £650,000 Residence NRB (incl spouses) £250,000 RNRB reduction £0 Residence NRB (incl spouses) £250,000

RNRB Full

NRB Max 2

IHT Full Access

Assets

Home Bank Onshore Bond Excess Income

Planning matters…

Income Tax £8,380 Higher rate liability Reduced PSA Inheritance Tax £483,512 No gifts made 2 x NRB Access and Control Total Access Total Control Tax cost! Simplicity Tax return Multiple wrappers/ income types £6,110 Basic rate liability Restored PSA £340,276 Reduces @ 7 years 3 x NRB Given up: capital of £100k & growth on £200k Total Control No tax return(s) Trust admin simplified

Before After

Resources available

pruadviser.co.uk/knowledgecentre Oracle publications 03457 11 12 13 Technical.Helpline@Prudential.co.uk

Learning outcomes

Client needs generated from Estate Planning Planning

• pportunities

from different tax wrappers and trusts Investment considerations for trustees and how planning can help Resources and support available

Thank you for your time

If you would like to give us feedback directly or request information not covered elsewhere please email us at

speakernotes@prudential.co.uk