Life Assurance And Pensions In Trust Flashcards

(41 cards)

1
Q

Why use a life policy in trust

A

Family protection
Partnership and shareholder protection
Iht planning

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2
Q

Who can be the beneficiary of a statutory trust for an own life policy

A

Spouse and children

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3
Q

Who claims the benefit on a policy under trust

A

Trustees

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4
Q

If the settlor of a life policy trust is alive and up resident before chargeable event what is the income tax position

A

The gain is treated as part of the settlers income

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5
Q

If the settlor of a life policy in trust was dead or non uk tax resident before chargeable event and there is a UK resident trustee who is liable for income tax

A

Trustees liable at trust rates

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6
Q

If the settlor of a life policy in trust is dead or non UK res at time of chargeable gain and there are no uK trustees who is liable for income tax on the gain

A

Beneficiary - no top slicing relief

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7
Q

How can you avoid the trustees tax liability on a life policy in trust on a chargeable gain

A

Replace us trustees with foreign trustees if beneficiary is nil or basic rate tax payer

Assign the policy to the beneficiary before chargeable gain - top slicing will apply

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8
Q

Is assignment of a life policy in trust a chargeable event?

A

No

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9
Q

When is a life policy in trust liable to CGT

A

If policy assigned for actual consideration

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10
Q

What is used to calculate the transfer of value for IHt on a life policy under trust

A

First premium payable is first transfer of value any further premiums are subsequent transfers

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11
Q

How is the value calculated for a policy that is assigned

A

The greater of

Total premiums paid minus sums previously paid out by part surrender and the current surrender value

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12
Q

What is value for iht purposes on an annuity and related life policy

A

Lower of
Price of annuity and first premium of life policy and sum assured

Or

Value of the greater benefit that the policy confers

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13
Q

What is a pre owned asset tax

A

Annual income tax charge on deemed income from certain gifts made after 18/03/1986

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14
Q

When is the pre owned asset tax charged

A

If the donor retains an interest in gifted property

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15
Q

What are the categories of POAT

A

Land chattels and intangible assets

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16
Q

What is the income threshold for POAT

A

£5000 - but it exceeds £5k then tax on full amount not just excess over £5k

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17
Q

What is official rate of interest for the cash value of a benefit for POAT

A

2.5% of the asset market value on 6th April each year

18
Q

Which life policies are not exempt from POAT

A

Business trusts when settlor is a potential beneficiary

Power of appointment trusts - premiums paid since 18/03/1986

Spousal interest trusts - temporary interest in possession to spouse

19
Q

How can a donor end POAT

A

Bring benefit to an end (gift for IHt)
Dismantle arrangement
Pay a market rent for property/chattels
Opt out of POAT and elect for gift to be treated as a gift with reservation

20
Q

What are the reasons to elect for gift with reservation charge over POAT

A

May qualify for 100% business relief

If spouse exemption applies

Value of the estate is within the nil rate band

Asset owner of young and healthy

21
Q

What the reasons no to electing for gift with reservation treatment over POAT

A

Donor can afford the annual charge

Short life expectancy POAT charge less than IhT

Amount of POAT is less than £5k

Donor does not want to pass IHT burden to the donee

22
Q

What type of trust is a business trust

A

Discretionary

23
Q

What are business trusts used for

A

Share purchase
Partnership protection
For limited companies and partnerships

24
Q

How does a business trust work

A

Each owner takes out an own life policy in trust for value of their business share

Beneficiaries are the other co owners

Settlor is usually a beneficiary to cater for if they left the business

25
When could a business trust be considered a gift with reservation
If not all business owners have reciprocal policies HMRC could argue it is gift with reservation There needs to be a commercial arrangement
26
What is a cross option agreement
Both parties have the option to buy or sell the deceased business share If one party exercises their option the other party must comply
27
When does business relief not apply to a business trust
If there is a binding contract for sale (buy and sell agreement)
28
Why is there no POAT on a business trust
Because life policies are negligible value unless life assured is in poor health when policy is taken out
29
What is the test for income and cgt on a trust which has non union trustee or settlor
1 uk trustee = UK resident Settlor uK res or domiciled at set up = trust uk resident If settlor non yo resident/domiciled = trust non UK resident
30
What are the conditions of a relevant life policy
Sum assured must be lump sum paid on death before age 75 Must be no surrender value I’ll health benefit can only apply during employment Benefits must be payable to individual or charity directly or via trustees No benefit in kind on employee Discretionary trust should be set up at the same time Member can make a non binding nomination of a benefit If member ceases to be an employee and pays premiums should not be a beneficiary under trust otherwise a GWT its ok if the new employer takes over the payment Creation of the trust is not a CLT
31
Are the death benefits of pensions usually part of the estate?
Not usually
32
What must the trustees of a dh scheme have in order to ensure the death benefit is not part of member estate
Discretion
33
When was personal pension life cover stopped
6/12/06 when tax relief on premiums were withdrawn
34
Who is the death benefit of a retirement annuity contract paid to
The estate
35
What is a bypass trust
Trustees of a pension use their discretion to pay death benefits to a bypass trust instead of paying it to the spouse when the value is then in their estate
36
What kind of trust is a bypass trust
Relevant property trust
37
Is there IHT payable on a bypass trust
No iht on transfer to trust | But there is periodic and exit charges
38
What is a relevant life policy
Life cover arranged by an employer on lives of employees
39
What are the tax benefits of a relevant life policy
Premiums deductible for corporation tax Not taxed on employee as a benefit in kind
40
If a collective is gifted to a bare trust what are the tax implications
Gift is a disposal for CGT on donor Gift is a PET for IHt purposes Income is assessed on beneficiary at marginal rate (unless parental settlement) CGT is assessed on beneficiary
41
If a collective is gifted to a discretionary trust what is the tax position
Gift is a disposal for CGT unless holdover relief is claimed Gift is a CLT for IHT Income is charged at basic rates if within trusts standard band or higher rates thereafter. Paid out as trust income with a credit of 45% CGT at highest rate - 1/2 annual CGT exemption applies (1/5th of 1/2 is minimum)