Tax treatment of investment bonds


(nicholas.sewell) #1

Following on from this very helpful thread can I ask about these bonds where the last named life assured has died so the policy is at an end and can pay out and a chargeable event for income tax purposes has therefore occurred. In my particular case the bond is held under an old Hambro Life Family Trust where family beneficiaries are named in default of any appointment. No appointment has been made to date. Therefore, my question is are the proceeds now held on bare trusts for the named beneficiaries and in which case I think ITTOIA05/S465 (2) says the bare trust is ignored and each individual named beneficiary is chargeable by virtue of this provision? The alternative ( and less beneficial ) view is that the chargeable event is assessable on the Trustees who are then chargeable by virtue of section 467. What do Forum Members think?

Nick Sewell
Bevirs


(Paul) #2

The answer depends on the terms of the trust. I think the sort of trust you are referring to would be what is sometimes referred to as a flexible absolute trust. If an appointment could have been made immediately after the last life assured died then the trust had not come to an end at that date. You need to look carefully therefore at the scope of the power of appointment (who is it exercisable by, during what period, etc.)

Paul Davies
Clarke Willmott


(Kirsty Tyler) #3

Hi Nick, Paul is correct to direct you to the Trust Deed. Life companies often used to label their standard trusts ‘Flexible Trusts’ or ‘Flexible Power of Appointment Trusts’. These trusts wouldn’t normally come to an end on the ending of the Bond investment due to the death of the last life assured. The question, then, is who is liable for the chargeable event tax? There is a comprehensive guide to the taxation of UK investment bonds including death of the final life assured and who the chargeable gain is attributable to at PruAdviser https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/taxation-uk-investment-bonds/#section-10

Kirsty Tyler
Wyefield Wealth Management