- Single lady, 50 years of age.
- Accumulated pension fund already at the Lifetime Allowance.
- Wants to make more provision for retirement.
- Has surplus income.
- Higher rate taxpayer.
The Offshore Savings Account – adding retirement provision
Olive has been saving for her retirement and has built up significant provision in her existing arrangements and her fund has now reached the lifetime allowance. This is the limit on the amount of pension benefit that can be drawn from pension schemes, where lump sums or income beyond that limit will face a lifetime allowance charge. This charge is 55% on any lump sums she takes and 25% plus income tax on any income. Given these high tax charges she is looking for another tax-efficient way to save regularly to enable her to retire with the financial security she wants.
After speaking with her professional adviser Olive invests an amount of £800 each month into the Offshore Savings Account from Canada Life International. This arrangement is a series of identical international policies that will grow with the benefit of gross roll-up which means that the underlying investments can grow free of UK tax; both income tax and capital gains tax. She can choose to invest in one or a number of investment funds from a range of over 150 investments, including:
- major asset classes: UK Equity; International Equity; Fixed Interest; and Property
- major geographical regions: Asia, China, Europe, Japan, Latin America and North America.
- managed or portfolio funds in a range of investments to meet a specific risk profile or investment mandate.
The funds are managed by some of the world’s largest and most respected fund managers, offering her the opportunity to create a truly diverse investment portfolio.
By using an effective exit strategy from her pension and the Offshore Savings Account, Olive is able to minimise the tax she pays in the future. From her pension she takes a combination of tax-free lump sums and income to use up her personal allowance. She is then able to take benefits from the Account to supplement this, and any growth on the investment is treated as savings income, allowing more money to be paid free of UK income tax.
- As a series of international life assurance policies, the underlying investment can grow free of UK income and capital gains tax, similar to the growth in a UK pension.
- The underlying funds can be switched at any time without charge and without incurring a UK tax liability.
- Olive has a choice of how to take money back from the Account, either by taking withdrawals or cashing-in individual policies.
- Any gains from the investment are treated as savings income and could be set against any unused personal allowance, savings rate of income tax and the personal savings allowance, if these are available.
- If Olive does incur a tax charge when taking money out of the Account, then her tax position at that time will apply and she could be a basic rate taxpayer or even a non-payer.
On Olive’s death
- The policy or the proceeds from the policy will form part of Olive’s estate and unless the money was put into a suitable trust or gifted to someone else, would be subject to UK inheritance tax.
- The value of investments can fall as well as rise and you should speak to a professional adviser to ensure that any investment is suitable for you.