Michael and Kay
- Married couple aged 30 and 31 with a three year old son, Anthony.
- No inheritance tax liability.
- Lump sum to invest for three year old son, Anthony.
The Delta Account
Michael and Kay are married and both work, providing sufficient income for their needs. They are still paying their mortgage and have accumulated some savings that they retain on deposit to cover any short term emergencies. Three years ago saw the arrival of their son, Anthony.
Kay’s father has recently retired and has given them £35,000 from the lump sum he received from his pension provider.
There is no specific need for this money so after speaking with their professional adviser, Michael and Kay decide to invest the money in a Delta Account from Canada Life International to give the potential to provide a better return than they could achieve by keeping the money on deposit, in a tax-efficient environment. They are conscious that over a longer period of time the value of the money could fall in real terms due to the effects of inflation.
They want to make sure that the lump sum can grow in a tax-efficient environment, whilst allowing access to the money. They are also attracted by the ability to gift the investment to their son when he is old enough, should they decide to.
During the next 15 years they draw on this money to help pay for family holidays and school trips for Anthony.
When Anthony reaches 21, both Michael and Kay are in better paid jobs and decide that they do not want access to this money anymore and give the policy to Anthony. They feel he is old enough and responsible enough to use the money wisely.
Anthony cashes-in the investment and uses the money to help buy a car, putting the rest towards a house deposit. He is just starting out in his working life and as the profit in the policy is subject to income tax, given he is a lower earner than either Michael or Kay, the tax Anthony pays will be a lot less.
- The investment can grow free of UK income and capital gains tax, deferring the potential liability until the policies are cashed-in.
- During the investment term Michael and Kay were able to take money out of the policy without incurring any immediate tax liability.
- Any tax liability when cashing-in policies is based on the policyholder’s tax position at that time. As this was Anthony who was a lower earner than Michael and Kay, the tax payable was reduced.
- 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 Michael and Kay’s death
- Had Michael and Kay died before gifting the policy to Anthony, as Anthony was a life assured the investment would continue and would have been passed to the beneficiaries of their estate without any income tax liability.
- The value of the policy could be subject to inheritance tax unless it is placed under a suitable trust.
- 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.