Controlled Access Account

Each account is made up of the following elements:

• An absolute or bare trust, which you make a permanent and irreversible gift into for investment.
• The trustees invest your gift into a series of single premium, investment-linked life assurance policies with different maturity dates. When these policies mature they can be paid to the trustees, who will distribute the proceeds to the beneficiaries.

 

Setting up the account

Set up the Controlled Access Account with a lump sum, for the benefit of a named child. The child beneficiary is entitled to 99% of the investment and an additional adult beneficiary is entitled to the remaining 1%.  Splitting the beneficiaries in this way makes sure that the child beneficiary does not have sole and immediate access to the trust assets when they reach 18.                  

Payments to the child before they’re 18

The trustees have the flexibility to choose whether to make yearly maturity payments to the child before their eighteenth birthday. Once the child is 18, this flexibility to defer annual maturities stops. The trustees should therefore decide, before the child beneficiary reaches 18, the age that they should receive future policy maturities. This can be anytime up until the age of 49.

Accessing your money

With a Controlled Access Account, you cannot receive any money from the investment. Therefore, it's only suitable if you’re certain that you want to give your entire investment to your chosen beneficiaries.

An absolute/bare trust

This is an absolute/bare trust for a named child and adult, which allows the trustees to control access to the investment. With a bare trust you cannot change the beneficiaries, so you’ll need to be certain about who you choose.

Income tax

A chargeable event gain may arise if an individual policy matures or the life assured passes away.  Depending on their circumstances at the time, the child and adult beneficiary may need to pay income tax when a chargeable event gain arises.  The chargeable event gain is assessed in the same proportion as the beneficiaries’ entitlement to the trust. If the settlor is a parent of the child beneficiary who is under 18, the parental settlement anti-avoidance rules will apply. This means that the child's share of the chargeable event gain over £100 would be assessed on the parent settlor at their marginal tax rate.

Inheritance tax

Your gift into the absolute/bare trust is a potentially exempt transfer (PET) for inheritance tax purposes and is fully exempt from inheritance tax if you live for seven years after making the gift. 

As it's an absolute/bare trust, the trust fund value will be included in the beneficiaries’ estates – 99% in the child beneficiary’s estate and 1% in the adult beneficiary’s estate.  If the adult beneficiary gifts their share of the trust fund to the child beneficiary, this is also a potentially exempt transfer (PET) for inheritance tax purposes and will be fully exempt from inheritance tax if the adult beneficiary lives for seven years after making the gift.

For more information on tax, please speak with your adviser.

A wide range of investments

Access an almost unlimited range of investments from around the globe including:

• Unit trusts
• Investment trusts
• Open Ended Investment Companies (OEICs)
• Cash deposits

 Other benefits:

• A choice of more than 120 discretionary managers
• Use of any of the 20 or so investment platforms we link to
• The flexibility to change your investments at any time

You can also split your investments across different platforms and different discretionary fund managers.

Explore all your investment choices.

 A wider choice: our Segregated Portfolio Service

Available through both accounts, the Segregated Portfolio Service offers an even wider range of investments, with direct access to equities and bonds.

 Benefits include:

• A wider choice of investments, such as holding equities directly, with greater scope for diversification
• The chance to reduce expenses by direct investing, rather than through funds
• Access to expert stock selection through a discretionary investment manager
• The ability to invest directly into income generating assets, such as gilts and other fixed interest investments

 No annual tax charge

Including these types of investments usually means you’d pay a high annual tax charge because the account would be classed by HMRC as a personal portfolio bond.

However, we’ve made sure that our Segregated Portfolio Service is not treated as a personal portfolio bond, so you won’t need to pay this annual tax charge.

Explore our Segregated Portfolio Service 

What are the risks?

As with any investment, the value can go down as well as up so you might get back less than you invest. Different investments have different levels of risk and past performance is no guide to future performance. Tax rules depend on the type of investment and individual circumstances and may change.

How many trustees are needed?

You’ll need to make sure that the trust always has at least two personal trustees or one corporate trustee.

Can the adult beneficiary be a trustee?

Yes, the adult beneficiary can be one of the two personal trustees

 Can I change the beneficiary?

No, you can’t change the beneficiaries once the trust has been set up. 

When the individual policies mature, the trustees will distribute the maturity proceeds 99% to the child beneficiary and 1% to the adult beneficiary, in line with the trust.  If the adult beneficiary gifts their share of the maturity proceeds to the child beneficiary, this is a potentially exempt transfer (PET) for inheritance tax purposes.

 How can the child beneficiary receive money from the trust before they’re 18?

Maturity payments from the policies in trust can be structured from the outset to meet specific requirements, like education fees. These maturities can be deferred, by the trustees, to a policy anniversary on or before beneficiary’s 18th birthday.  At the anniversary before the child beneficiary’s 18th birthday, the trustees can defer some or all policies to any policy anniversary up to the child beneficiary’s 49th birthday.  Once the child beneficiary is over 18 policies must mature and cannot be deferred.

What happens if the child beneficiary dies?

As the child is the sole life assured, the death benefit will be paid to the trustees, who’ll then distribute the investment.

Application Controlled Access Account Application Form Controlled Access Account Bare Trust Deed   Guides Controlled Access Account Client Guide Controlled Access Account Tax Notes CLI and CLIAI Charges and Fees

Product Literature Controlled Access Account Key Features Document Controlled Access Account Key Information Document Controlled Access Account Policy Provisions Controlled Access Account Suitability Report

 

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Case Study 1 – John and Jean’s story

About John and Jean         

John is 73 and Jean is 71. They have £450,000 in savings that they’d like to set aside for their three grandchildren, aged eight, five and three.

Their goals

John and Jean want to pay for their grandchildren’s school fees, until they’re 18.  After that, they want to be able to provide a pot of money to help support them at key points in their lives – to fund a gap year, pay for university fees or help towards a deposit on their first home.

Although the couple want to support their grandchildren and leave them an inheritance, they don’t want the children to have automatic access to the trust when they’re 18.

The Controlled Access Account

With the help of a financial adviser, John and Jean decide to invest £150,000 for each of their grandchildren, into three separate Controlled Access Accounts.

How the payments work

The Controlled Access Account combines an absolute/bare trust with a series of life assurance policies that have different maturity dates. The absolute/bare trust also needs to have an adult beneficiary, so John and Jean appoint James, their son and children’s father.  Each grandchild is the beneficiary on the individual accounts.

 The policies can be set up to mature individually or in groups, at specific dates until the children reach 18. If all the maturity proceeds aren’t needed, the maturity dates can be deferred to a date after the grandchildren’s 18th birthdays. This can be anytime up to the age of 49. This means that payments can be made to the children at important times in their lives.

 This is a tax-efficient way for the grandchildren to receive payments that are securely controlled by the trustees, who’ve been appointed by John and Jean. As the CAA is subject to a bare trust with an adult beneficiary and no full surrender option is available, the possibility of the grandchildren forcing a surrender is removed.

 Flexible access

John and Jean are able to control when the payments are made to the children as they’ve made themselves and the children’s parents the trustees.

 Tax efficiency

The gift into each Controlled Access Account is a potentially exempt transfer and is therefore outside of John and Jean’s estates, as long as they live for seven years after setting the account up.

 When it comes to any income tax due from the chargeable event gains on maturity, 99% of the gain will be assessed for tax on each grandchild. The remaining 1% of the gain will fall on the adult beneficiary.

 If James, the adult beneficiary, gifts his 1% share of the trust fund or maturity proceeds to the grandchild, he will be making a gift, and this is a potentially exempt transfer (PET) for inheritance tax purposes.

Case Study 2 – Peter’s story

About Peter                           

Peter is 52 and is guardian and godfather to his nephew Cameron, who is 16. He’d like to give him £50,000 to help him buy his first home.

 Peter’s goals

Peter wants to provide a pot of money to help Cameron buy a home but doesn’t want him to access the money until he’s at least 25.

 The Controlled Access Trust

With the help of a financial adviser, Peter decides to invest £50,000 into a Controlled Access Account.

The Controlled Access Account combines an absolute/bare trust, with a series of life assurance policies that have different maturity dates. This is a tax-efficient way to receive payments and is securely controlled by the trustees, appointed by Peter.

 Deciding when a child can access the trust

With this trust, the maturity dates can be set to a date in the future – after Cameron’s 18^th birthday and up until to the age of 49. Peter arranges for all policies to mature on the anniversary after Cameron’s 25^th birthday.

 The beneficiaries are split between Cameron, who’ll receive 99% of the proceeds of each policy and an adult beneficiary who’ll receive 1%. This means that Cameron cannot force access to the trust when he’s 18, as the policy is subject to a bare trust with an adult beneficiary. Peter makes himself one of the trustees, so he can control when Cameron receives the money.

 Payments from the trust

After his 25^th birthday, when the policies reach their designated maturity date, Cameron can choose to allow the policies to mature. By the time, the Controlled Access Account would have grown to £71,624 (assuming 4% annual investment growth).

 The trustees can request that the maturity proceeds are paid directly to Cameron (99%) and the adult beneficiary (1%). Alternatively, the maturity proceeds can be paid to the trustees, who will distribute them 99% to Cameron and 1% to the adult beneficiary, in line with the trust.

 The adult beneficiary can choose to gift their 1% share of the maturity proceeds to Cameron. If they do, they will be making a gift for inheritance tax purposes, and this is a potentially exempt transfer (PET).

 Tax efficiency

The gift into the Controlled Access Account is a potentially exempt transfer (PET) and therefore outside of Peter’s estate, as long as he lives for at least seven years after making the gift.

 When it comes to any income tax due from the chargeable event gains on maturity, 99% of the gain will be assessed for tax on Cameron. The remaining 1% will fall on the adult beneficiary.