Carl and Madeleine
- Married for ten years
- They live in England
- Madeleine is from France and has retained her French citizenship and passport
- They want to limit their inheritance tax liability
Inheritance tax solution
Carl and Madeleine had a shared career in fashion design. This business had thrived over the years and their assets had grown substantially in value. They had bought a house in Knightsbridge in joint names and the value was now just over £5m. Since the house was situated in the UK, the whole value would be subject to inheritance tax (IHT), despite the fact that Madeleine was non-UK domiciled.
Carl and Madeleine wanted to minimise this potential IHT liability and discussed potential solutions with their professional adviser. One option would be to take-out a whole life policy under a discretionary trust, with cover of £2m (the potential amount of IHT) payable on the death of the survivor. But this, in turn, would create another problem. Whilst Carl had little or no spare income, being asset rich and cash poor, Madeleine had a great deal and could easily afford to pay the £1,044 yearly premium. The difficulty was that the majority of Madeleine’s income was being generated outside the UK and, as it was substantial, she was paying the £30,000 remittance basis charge. This meant that Madeleine’s overseas income would not be subject to UK tax unless it was remitted to the UK. If she used part of her overseas income to pay the premium on a UK whole life policy under trust, it would be wholly exempt under the gifts from normal expenditure exemption as far as IHT was concerned, but it would be a remittance into the UK and, hence, would trigger an income tax liability.
Fortunately, the professional adviser knew of a solution to this problem in the form of Canada Life International’s CanProtect Whole of Life Plan. Since Canada Life International is based on the Isle of Man, premium payments for the policy are not remittances into the UK. This means that Carl and Madeleine will be able to:
- pay a premium of £1,044 a year from Madeleine’s overseas income, exempt from IHT
- avoid triggering a UK income tax liability on the income being used to pay the premium
- have £2m of life cover to mitigate the potential IHT liability on the value of the house.
- To provide a cash sum payable on death.
- If you have a single life Plan and the life assured dies then we pay a lump sum subject to admittance of a valid claim.
- If you have a joint Plan with someone else, we will pay a lump sum after the first death or after both of you have died depending on which option you have chosen subject admittance of a valid claim.
- This Plan does not have a surrender value at any time.
It is important that individuals take their own professional advice.
Who is it for?
The CanProtect Whole of Life Plan is a suitable protection solution for individuals and couples who have a UK tax liability who may have been born inside or outside of the UK and may also be resident inside or outside of the UK.