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Inheritance Tax Reforms: An Insurance Solution

HM Revenue and Customs (HMRC) have announced significant reforms to the rules on the taxation for Non UK Domiciled individuals and UK residential property which will take effect from April 2017.

Inheritance Tax on UK Property

From 6 April 2017, UK residential property held either in an offshore company owned by shareholders who are non-UK domiciled, or held through an offshore trust structure that was settled by non-UK domiciled person, will no longer be afforded IHT protection. 

These changes will bring the value of UK residential property within the charge of Inheritance Tax (IHT), even if the property is held in an offshore structure such as a trust or company.  

Non Doms returning to the UK

Of particular interest to many Guernsey residents is the change that will affect individuals who held a UK domicile of origin and were born in the UK, but have since acquired a non-UK domicile of choice outside of the UK (i.e. Guernsey). From 6 April 2017, if these individuals maintain a non-UK domicile of choice under general law but return to the UK and become resident, they will be treated as deemed domiciled in the UK and will be exposed to IHT on the value of their worldwide assets for any period that they are UK resident.

Time to take action now

As a result, we understand that Guernsey resident individuals, trustees and tax advisers are faced with a significant potential liability to IHT on UK residential property (for either themselves or their clients), if they don’t take action before April 2017.  

As part of the reforms a specific anti-avoidance rule is being introduced to target any arrangements put in place to avoid an IHT charge. Therefore those affected by these reforms may wish to consider a solution to pay any potential liability. At Sydney Charles Financial Services, whilst we do not offer tax advice, we are able to provide advice on a simple solution that can potentially cover any future IHT liability in this area.  

Inheritance Tax Insurance

Inheritance tax insurance is a Whole of Life insurance policy. An IHT Whole of Life Insurance policy can be taken out on a single or joint life basis and will run until the death of the policy holder (usually until second death for a joint policy), or earlier cancellation of the plan. The “Sum Assured” can be set at the same level as the potential IHT liability. When the chargeable event occurs (i.e. death) the sum assured will pay out and can be used to cover the IHT liability.

A simple approach

IHT life insurance is a simple solution to what can be a complex problem. By setting up an IHT Insurance policy to pay any potential liability there is no time (or money) spent trying to put together a complex structure in order to avoid a potential IHT charge. The individual is simply putting in place a way of paying such a charge. 

What types of IHT Insurance are available?

Guaranteed Whole of Life Cover – This gives insurance for life and the premium for the selected amount of cover is guaranteed to remain the same for life.  

Rolling Term – This provides insurance for life with premiums guaranteed for ten years at a time and is usually at a lower cost than Guaranteed Whole of Life Cover for the first ten years.

At the outset of the plan the policyholder will receive an illustration detailing the policy premium increases that will be implemented at 10, 20, (and if they are under 70), 30 years, providing that the level of cover doesn’t change. However, should your IHT liability increase, there is the option to change the level of cover at each renewal period, without further medical underwriting.

The cost of Inheritance Tax Insurance – The cost of IHT Insurance will depend on a number of factors including the level of tax liability to be covered, the age of the individual/s and their health. Sydney Charles Financial Services are confident that we can provide you with a highly competitive quotation for coverage to give you peace of mind that any liability will be taken care of in a simple and straightforward manner.

Regular Reviews

It is often the case that an individual’s IHT liability can grow along with the value of their assets.  It is therefore important to review your positon regularly with your Financial Adviser.  

Financial Review and Quotations

Sydney Charles Financial Services will provide a no obligation, free of charge initial consultation to review your situation and assess your needs in this area. If it is determined that IHT insurance would be beneficial to you, then we will happily provide a competitive quotation tailored to your specific needs.

For further information please contact: 

Paul McCormick
Financial Adviser 

Tel: + 44 (0)1481 739970
Email: [email protected]

This briefing note has been prepared as guidance only and does not constitute financial or tax advice. Sydney Charles Financial Services is not authorised to provide tax advice and you should seek advice from a qualified tax adviser in this area before making any decisions. Sydney Charles Financial Services is licenced to provide advice on Life Insurance, Pensions and Investments by the Guernsey Financial Services Commission. Registered Office: 16 New Street, Guernsey, GY1 4NZ. Company Registration: 51685.

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