Life Assurance Based Investments

Question 1

Advantages of unitised with profit policies

Answer 1

• Bonuses declared annually in advance
• Easier for clients to understand current value
• Can switch to other unit linked funds
• Terminal bonus may be payable
• Less commitment of reserves for life offices

Question 2

Offshore bond gain taxation

Answer 2

• Personal allowance can be used if available
• Starting rate for savings £5,000 can be used if applicable
• PSA can be used for BRT and HRT
• BRT - whole gain chargeable at basic rate of 20%
• HRT - 40%
• ART - 45%
• Top slicing can be used

Question 3

Offshore bonds vs onshore bonds

Answer 3

Offshore bonds:
- Non-reclaimable withholding tax
- Charges usually higher
- for HRT 40% charged on GROSS return (45% for ART)

Onshore bonds:
- Fund benefits from indexation relief on gains
- Management expenses deductible
- HRT 20% is charged on NET return (25% for ART)

Question 4

Offshore bonds vs offshore funds

Answer 4

Offshore bonds:
- Fund switches are not chargeable
- Always subject to income tax
- Typically higher charges
- Easier to place in trust
- 5% tax deferred withdrawal facility

Offshore Funds:
- Gains subject to either income tax or CGT depending on fund
- Charges less than offshore bonds

Question 5

Single premium bond - advantages and disadvantages

Answer 5

Advantages:
- Fund switches without CGT
- Higher rate taxpayers - underlying tax lower than if held directly
- 5% cumulative withdrawals

Disadvantages:
- Tax on underlying funds non-reclaimable
- CGT paid in fund
- Postpones tax liability - caution if client’s tax rate increases

Question 6

Offshore bond - advantages and disadvantages

Answer 6

Advantages:
- Underlying funds free of UK tax on capital gains
- Increased scope to postpone CGT

Disadvantages:
- Gains treated as income on encashment so no annual CGT exemption
- Withholding tax
- Often higher charges

Question 6

Regular premium paying policies - advantages and disadvantages

Answer 6

Advantages:
- Qualifying policy so free of personal tax on maturity

Disadvantages:
- Inflexible
- Minimum level of life cover

Question 7

Advantages of trustees investing in investment bonds

Answer 7

• Provide wide variety of funds
• Generate no taxable income
• Underlying fund taxed at lower rate (corporation tax) than trust rate
• Able to assign to beneficiaries with no tax charge
• 5% withdrawal facility with no immediate tax charge