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Where Taxpayers and Advisers Meet

How to best use the 5% tax deferment with offshore life assurance policies?

marc02
Posts:94
Joined:Wed Apr 22, 2009 2:46 pm
How to best use the 5% tax deferment with offshore life assurance policies?

Postby marc02 » Sun May 21, 2017 11:51 pm

With investments that are held inside an offshore Life Assurance, discretionary Trust, (or Capital Redemption) is it possible to choose when to apply the 5% deferment?

Payments are to be made to a beneficiary who is has not used his annual allowance or certainly would be a lower rate tax payer. In the future payment are likely to be made to another beneficiary who will almost certainly have greater tax liabilities. Therefore, it would make sense not to apply the 5% tax deferment to the first beneficiary, allowing the deferment to be build up over the years (maximum 20 years allowed) and then use that deferment for the second beneficiary, who is likely to be a higher rate tax payer.

If this is possible, how is the use of the 5% is reported. Is it done by the assurance company, or by way of the beneficiary’s self-assessment? If the later is simply a case of instructing the first beneficiary that the payments he receives are immediately taxable and not deferred? Or, would such action result in the tax liability going to the Trust at the Trust rate (which I think would be 45%) and then the beneficiary claiming a tax credit (if applicable to them)?

Thanks

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: How to best use the 5% tax deferment with offshore life assurance policies?

Postby maths » Mon May 22, 2017 3:51 pm

If the settlor of the offshore trust is resident in the UK and alive then any chargeable event gains are subject to UK income tax on his part, not the trustees or beneficiaries.

marc02
Posts:94
Joined:Wed Apr 22, 2009 2:46 pm

Re: How to best use the 5% tax deferment with offshore life assurance policies?

Postby marc02 » Tue May 23, 2017 12:03 am

Thanks. And as for the reporting process? Is it the settlor that reports the deferred tax on their self assessment or it picked up by HMRC through reporting done by the life company?

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: How to best use the 5% tax deferment with offshore life assurance policies?

Postby maths » Tue May 23, 2017 3:01 pm

Settlor has to report as he is assessable. From memory on the Foreign Pages.

However, if the cashing in by the trustees falls within the 5% no income tax charge actually arises; in this case either no need to report or you could in the "Additional Inof" box on the main Return simply disclose the gain but refer to falling within the 5%.


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