- Age 39.
- Higher rate taxpayer.
- Has built up an investment portfolio worth £500,000.
- Wants to retire at 55 and expects to be a basic rate taxpayer at that time.
- Is a knowledgeable investor and likes to invest across a wide variety of investments and geographical areas.
The Premiere Account
A few years ago Ben paid off his mortgage and has managed to build up an investment portfolio through savings and an inheritance from his parents. Due to the income generated he recently became a higher rate taxpayer.
Working with his professional adviser, Ben plans to retire at 55 and is looking to restructure his investments to provide a flexible tax-efficient income at that time. His pension will not start paying until he reaches 67, so he will have an income shortfall for 12 years.
Following conversations with his professional adviser, Ben decides to move a large part of his portfolio into a Premiere Account with Canada Life International. This is a series of identical international investment bonds where the underlying investments can grow free of UK income and capital gains tax.
At 55 Ben finishes work. His income falls as he only receives investment income from his remaining portfolio. This income just about covers his personal allowance and the dividend allowance; however it is insufficient to meet his expected expenditure.
As the Account is made up of a series of identical policies, Ben cashes-in enough to use up the savings rate of income tax which provides him with more tax-free income. In addition to this, he is able to take withdrawals from the remaining policies. For tax purposes these withdrawals are treated as a return of capital so there is no immediate income tax liability.
This flexibility allows Ben to generate sufficient money from his investment, until his pension becomes payable at 67.
- The investment can grow free of UK income and capital gains tax, deferring the potential liability until the policies are cashed-in.
- Any tax liability when cashing-in policies is based on his tax position at that time, allowing him to use the savings rate of income tax and avoid any higher rate income tax.
- He is able to take tax-efficient withdrawals from the policies.
- The Account offers full open architecture investment, meaning that Ben and his adviser can create a suitable portfolio for thousands of different funds from around the world, or use investment platforms.
- Policies can be assigned to new owners or into trust and providing this is done as a gift there is no income tax charge.
On Ben’s death
- If there were surviving lives assured on the policies then the policies will continue and form part of Ben’s estate. The policies can be assigned to the beneficiaries of his estate.
- If Ben was the last life assured then the value of the investment will be paid to the beneficiaries of his estate and any growth could be liable to income tax, spread over the investment term.
- The value of the policies would be subject to inheritance tax unless they were placed under a suitable trust.
In this instance, Ben lives well into his eighties and ten years before his death had assigned these policies into a trust for his grandchildren. He had no further need for the money as his expenditure had reduced and was covered by his pension income and other investments.
- 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.