Our 80yr old higher rate tax paying client wants to switch off his £10k (5% per annum) offshore bond withdrawals after the 20th payment as they are no longer tax deferred.
We realise that HMRC’s capital taxes office may deem this to be a Potentially Exempt Transfer of value but the question is how do we evidence the value of that transfer.
My proposal is to underwrite and reverse engineer a new £200k DGT for him with 5% pa withdrawals. If his life expectancy is normal, today’s discount will be 37%. i.e. the value transferred by giving up £10k pa is £74k.
Would an actuary agree with this methodology?
You will need to speak with the provider as the terms and conditions will dictate what the client can and can’t do. Normally during the settlor’s lifetime there is a fixed regular income carved out and the only duty of the trustees is to pay that fixed regular income. Because of the duty to pay the settlor the regular income normally the trustees can’t surrender the bond, during the settlor’s lifetime.
Kim Jarvis
Hi Kim,
There are no plans to surrender the bond. We’re just planning to switch off the withdrawals. We know that this is possible, as we have done this before on several occasions.
Our question is about how we evidence the transfer of value when giving up the right to an income.