The company says that this is due to a change of view by HMRC. If these clients are not given further advice their estate could be hit with an unexpected tax bill on their death, says Skandia.
Previously, an individual with a UK insurance policy could take that policy outside the UK, under seal, to avoid UK inheritance tax on death; provided they were non-UK domiciled at the time of death. Once the policy was located outside the UK, the tax savings were significant – saving up to 40% on inheritance tax on the value of the life policy. This method of estate planning has been popular over the years as the UK has always attracted wealthy individuals from across the world.
However, it appears that HMRC have changed their view, according to Skandia. While it is still possible for policies to be taken outside the UK, they may no longer be exempt from IHT.
HMRC now require greater tests to be carried out to determine whether the policy can be considered a non UK situated asset and therefore outside assessment for UK IHT. Such tests may include; what country the insurance provider is based in, where the policyholder is living when they die and the location of any property if the policy is used as security. This could mean a client's estate is hit with a significant and unexpected tax bill on death, something which could be avoided.
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Existing clients who have taken steps to move their insurance policy overseas will now need advice, and may need to reconsider what they can do to protect their estate from paying inheritance tax on the policy proceeds. If they are now considered as holding a UK situated policy, or they just want greater certainty, then using a trust may be a suitable IHT planning solution. The suitability will depend on the client's current state of health and other key factors in the advice process, such as the current premium rate for replacement life cover.
Colin Jelley, head of wealth planning at Skandia, said: "All tax changes bring opportunities to provide on-going advice, and this is no exception. Giving a client further advice on this issue alone could save them tens of thousands of pounds if they are impacted. Using trusts is an excellent way for advisers to demonstrate the value of their advice to clients, and the potential savings from such wealth planning really can be significant."
Skandia is the UK investment platform and product provider of Old Mutual Wealth.