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 18th birthday and up until to the age of 49. Peter arranges for all policies to mature on the anniversary after Cameron’s 25th 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 25th 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.
*Promotion approved 04/07/23
