Chapter 8 Flashcards
Who can take out a mwpa policy
On your own life only only from the start of the plan
For spouse or children only
They are bare or absolute trust and are not flexible
Who can create a mwpa
Single
Divorced( this does not change their interest)
Widowed
For the benefit of their children ( not step children )
Cannot be a joint plan
It provides a higher protection than non statutory trusts for bankruptcy
Court can vary following divorce but divorce will not change their interest
Main reason for taking out mwpa policy
To protect against creditors
What else are non statutory trusts called
Express trusts
Where a non qualifying policy is held under trust what are the chargable events
Death of life assurance
Maturity or full surrender
Part surrender a oeuvre 5%
Assignment of plan to trustees is not chargable
How are statutory trusts created
By law
Under married womens property act
Intestacy rules
Who is liable to pay tax on a chargeable event again
If the settlor is alive and UK resident just before the chargeable event or if it’s in the same tax year as death at the highest marginal rate subject top slicing relief
It will be taxed on the trustees if the event happens in the tax year after the date of death or if the settlor is a non-resident
The trustee tax rate is 45% for a discretionary and a&m trust it will have a standard rate band of £1000 within the £1000 there is a 20% tax charge any Excess being taxed at 45%.
This means there will be an additional tax liability of 25% due to the 20% tax credit
If the settlor is alive and UK resident when a chargable event arises who will be assessed income tax on that again
The Setlor
What is the dead settlor rule
Policy is taken out before 17 March 1998 with both the trust and settlor died before that date this income tax liability falls on the settlor however they are dead so there is no tax liability on the gain as long as the policy has not been varied or enhanced since 17 March 1998
Can a nontaxpayer reclaim the 20% tax credit provided by UK policy
No
Who has to be assessed for income tax on any gains that rise on policies under a bear trust or absolute trust
The beneficiary unless this is the parent of an unmarried minor beneficiary and the chargeable event again for the tax year exceeds £100 the whole of the gain be taxable on the parent.
This is for each parent so therefore maximum limit of £200 will apply when parents the sole beneficiary of set up a joint bear trust.
Be aware the hundred pound limit relates to all income in one tax year
Do you pay capital gains tax on a life policy in trust
I life policy is only subject to capital gains tax if it is assigned for actual consideration this rarely happens with the trust policy
What are the implications of placing an existing life policy into trust
Regular premiums -it is the total value of the premiums
Regular premiums could be covered under the normal expenditure from income exemption as long as it does not affect the standard of living for The settlor
The annual £3000 exemption can also be used
For a single premium policy the single premium will be the transfer value for I HT
Premiums for policies held in absolute trust will be treated as pets
For most of the trust created after 22 March 2006 and all discretionary trust the excess over the available exemption is a chargeable lifetime transfer and taxed at 20% if over the 325,000 less transfer is made within the previous seven years
There may also be a 10 year anniversary periodic and ex-it charge
For interest in possession trust before 22 March 2006 all premiums were treated as pets but any changes since 6 October 2008 will bring them into line with new rules
What is pre-owned asset tax poat
Anti-avoidance measure targeted at more complicated IH T arrangements such as gifting of family home and continuing to live there
This does not include loan trusts and discounted gift trust that could include business trusts
It is a freestanding annual income tax charge on gifts made since 18 March 1986.
The yearly income benefit that the donor is deemed to receive from the gift that income tax charge is levied on the donor and not the current owner at the marginal rate
What are the three categories of PoAT
Land including buildings
chattels
intangible assets held in a secular interest trust such as life policies
Land and chattels will be revalued every five years
This official rate of interest for POAT is 3% on the asset market value
I charge to income tax will only occur if the value of the benefit is more than £5000 a year i.e. the minimum value is 166,666 or less
£166,66 x3%=£5000
The donor is subject to income tax charge on the whole amount and not just the XS
