Lumisi Presentation

Asset Protection Partnership:

Who can benefit?

Individuals with valuable investment assets, such as buy to let / commercial property, the value of which they would like to remove from their estate without losing access to rental income and / or the underlying capital.

Key benefits

• Save 40% IHT on the value of investment assets subject to Individual surviving 7 years from implementing the planning.

• Individual may still benefit from (and control) the capital and income as a Partner.

• Can be used to deal with future increases in value of the estate as well.

• The planning is ideally suited to land and property as can be implemented without a Stamp Duty Land Tax (SDLT) charge.

• We would not recommend using this planning for the main residence.

Examples of planning

• An individual has £1m of investment property, which will be subject to IHT of £400k.

• Sells property to Partnership though consideration is left outstanding by means of an IOU.

• There is no SDLT or any other taxes on the transfer of the property by the individual.

• The individual then decides to give away the IOU to a third party (say a child), which creates the reduction in the estate. Assuming the donor survives 7 years then the value falls outside of IHT.

• The IOU is only repayable after death creating a significant discount on the value of the IOU given away meaning an immediate reduction in the value of the estate even if death occurred a matter of months after the planning was implemented

• As the individual is giving away value rather than the assets, then the client can still benefit from the income and capital (therefore could still use, say, the rental income from the property portfolio.)

Entrepreneurs’ Relief Finance Bond (ERFB)

Who can benefit?

The ERFB provides a means of releasing value from a Client’s trading Company. The idea is suitable for the shareholders in unquoted trading Companies which qualify for Entrepreneurs’ Relief.

Key benefits

• Crystallise value net of 10% CGT Entrepreneurs’ Relief• Provide a tax-free drawdown facility for the next few years

payable from the business profits• Participate in the proceeds of any future sale assuming the

Company has increased in value.• Remain as a Director of the Company so absolutely no change

to the day to day activity of running the company.

Overview of steps

The main steps are as follows:• The Shares in the Company are sold at market value to a UK

Investment Company. This will crystallize a CGT charge. After the benefit of Entrepreneurs’ Relief this will be taxed at 10%.

• The consideration is left outstanding as a debt. • A bond is established by the Client which will benefit from the

net value of the Company going forward.• The Company will continue to trade with the vendor retained

as a Director of the Company.• UK Investment Company will pay off the outstanding debt

over the next few years out of the profits of the Company increasing the net value of the Company.

• On a future sale of the Company, the Client may again benefit from those proceeds.

Corporate annuity retirement benefit scheme (CARBs)

Who can Benefit?

CARBs has been designed to allow UK employers with key staff the ability to provide potential retirement benefits for those individuals without the restrictions applied to UK pension schemes but also without having to specifically allocate funds year on year meaning the CAS can be used as part of a long term retention package where benefits only vest in the future.

Corporate annuity retirement benefit scheme (CARBs)Key benefitsThe key benefits for the Employer are:• Full tax deduction in respect of the contributions as long as

wholly and exclusively for the purposes of the trade• Incentivise, reward and retain staff in an efficient manner• No issues with ‘disguised remuneration’ rules

The key benefits for Employees are:• Employee may currently get tax relief on contributions to a

pension scheme of £50k per annum (soon to be £40k per annum). This structure is outside of this limit.

• Currently, an individual can only have total tax relieved pension savings of £1.5m (soon to be £1.25m) without clawback of that relief. This structure is outside those rules so could be used as a ‘top hat’ structure or instead of a registered scheme.

A Brief overview of the steps

A brief overview of the steps:• Employer decides alongside the Individual the remuneration

strategy. Individual may agree on salary sacrifice in the hope of receiving a pension contribution in to the new arrangement.

• A discretionary award is made to a third party Life Assurance Co on behalf of multiple employees. It is important that this fund is not earmarked for any employee.

• Life Co holds the funds in the investment. On retirement the Employee may receive the award of an annuity entitlement from the life company.

• When paid, this annuity is taxable as retirement income. If the Employee is non-UK resident when receive then likely not taxable in the UK.

Stuart Stobie T E PESRG Taxation Limited

Contact information :

Office : 01244 304 035Mobile : 07800871507

Email : stuartstobie@esrg.co.uk