Life Interest on Death leaves income from monetary assets & cottage on death to Life Tenant. Cottage sold and all Trust Funds placed in 3 UK Investment Bonds. These were put in Trustees name (life insurance last to die). One Trustee died leaving Sole Trustee. Then Life Tenant died and Trustee wishes to distribute to all Residual beneficiaries ( 8 in total) .I discover first Bond sold and will incur 25% Tax (45% less 20%). However Chargeable Event Certificate was issued in name of Surviving Trustee. Also noted that 5% withdrawals were made and paid to Life Tenant - realise that this is Capital not Income.
How do we solve problem that if Bonds disposed of all Chargeable Event Certificates will be in name of Trustee as an individual?
So far thinking could be to assign all segments of remaining Bonds to Beneficiaries.
Where an investment bond is owned by trustees the issuing life office has an obligation to issue chargeable event certificates to the policyholder. In this case the certificate would be issued to the trustee (there seems to be only one trustee).
As the settlor is dead, the tax on investment bond gains is levied on the trustees.
Assignment of ‘segments’ would have the effect of transferring the tax liability to the recipient beneficiaries. There will be a saving in tax if the beneficiaries’ marginal rate is less than 45%.
Life offices will not execute a surrender or assignment unless it can be shown that reporting under TRS is fully up to date.
I’m not sure on whose life the bonds are on although the settlor of the trust is dead; hence no settlor/creator tax charge.
The death of the life tenant precipitates no chargeable event gain and the trustee continues to hold the bonds on trust.
The trustee could cash in the bonds (any gain being taxed at the 45% trust rate) or the trustee could assign, for no consideration (no tax charge), the bonds to the various residuary beneficiaries allowing each of them to cash in their bonds taxed at their own tax rate (thus possibly avoiding the 45% trust rate).
Malcolm Finney
I had assumed that it was on the lives of the trustees.
I agree with previous contributors that assigning the remaining bonds to individual residuary beneficiaries is the best approach. Presumably these all reside in the UK - I have experienced problems when a beneficiary lived overseas and the life office refused to process the assignment stating that they would only do so for UK tax residents.
Maxine
TC Citroen Wells