Solutions to the Inheritance Tax Problem

At Canada Life, we have a successful record in providing inheritance tax solutions. Below is an overview of what we provide, however if you require further information please contact your professional adviser.

• Gift trust solutions
• Insurance solutions
• Capital and trust solutions

As an individual you can leave £312,000 (for 2008/9) free of inheritance tax in your will, but what if your assets and investments are worth more that that?

You might want to consider making gifts now, as these gifts will not be part of your assets subject to inheritance tax. This is providing you live for more than seven years following the date the gifts were made.

However, how can you be sure that your gift will be used wisely and not wasted?

You might like to think about setting up a trust and making a gift to the trustees. Trustees are the people who look after the running of the trust. A gift into a trust is also outside of your estate for inheritance tax purposes after seven years. And the people you want to benefit from your gift can only receive money form the trust when you say so.

Trusts can be complicated and so you should ensure that you work with a professional adviser, such as a financial adviser, to ensure your needs are met.

There are different types of trust; brief details of the ones offered by Canada Life are shown below.

Gift trust solutions

These could be suitable if you just want to make a gift now, but leave it somewhere safe until it should be passed on.

At Canada Life, we offer two trusts which could suit this purpose: the Bare Gift Trust and the Discretionary Gift Trust .

Both enable you to make gifts, but you will not be able to receive any money back from the trust as otherwise the inheritance tax savings after seven years will not be available.

Bare Gift Trust
This trust is for the benefit of specific named individuals. There is no flexibility in the trust once it has been established. The trustees cannot change the proportion that a beneficiary will receive or change the actual beneficiaries. Once a beneficiary is aged over 18, they are entitled to their share of the trust fund.

Discretionary Gift Trust
This trust allows the trustees to distribute the trust fund to any beneficiary as they see fit. At the beginning you will give the trustees a list of people who can receive money from the trust, or descriptions of those people such as “my grandchildren”. (The advantage of using descriptions is that it can include future generations as yet unborn.)

The reason why there are two different trusts is that the inheritance tax position is different. You should consult a financial adviser to discuss which is the right one for you.

Capital Solutions

The problem with using one of the gift trusts mentioned above is that you cannot get any income or capital back from the trust.

If you are facing a substantial inheritance tax bill and need to make a gift of a large amount of money, you may be left in a difficult situation.

You are concerned about inheritance tax – but you need investment income or might need lump sums in emergency in future.

To help you overcome this position, Canada Life has developed a range of purpose-built trusts and investments.

If you might need to get back the amount you invested, or need a regular income, our Gift & Loan Trust might be suitable. Instead of making a gift, you make a loan to trustees that are repaid as specified by yourself. The trustees will invest the loan and any investment growth will stay in the trust and not be subject to inheritance tax on your death.

If you might need an income or lump sums in future, but are not sure how much and when, our Wealth Preservation Bond might be suitable. It gives your trustees the opportunity to make an anniversary payment to you if you need it. The trust fund will be free from inheritance tax, provided that you live for more than seven years following the start of the bond.

If you are worried about the fact that you will have to live for seven years for your gift to be completely free of inheritance tax, our Inheritance Protection Bond might be suitable. Each year, on the anniversary date, your trustees will make a payment to you to live on. These payments can start as soon as you like. With this arrangement, part of the trust fund will be free from inheritance tax immediately and the rest will be free from inheritance tax provided that you live for more than seven years following the start of the bond.

Insurance Solutions

You may still not want to part with a lump sum investment or maybe you are just living off your pension and have no spare capital to invest?

In that case, to do something about your inheritance tax problem, you could take out our insurance policy, Lifetime Protector .

This is what is called a whole of life policy and the idea is that when you die, it will pay out a lump sum to your trustees and they pass the money on to whoever is paying your inheritance tax bill.

It costs a fixed amount every month or every year and unlike other outgoings, the amount will not change in future.

Whatever you decide to do, time is of the essence and you should talk to a financial adviser today. The sooner you start planning to do something about your inheritance tax bill, the more effective your arrangements will be.