According to Skandia, HM Revenue & Customs has changed its view on a longstanding rule under which 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.
Skandia said it “appears that HMRC has changed its view”, adding that “while it is still possible for policies to be taken outside the UK, they may no longer be exempt from IHT”.
In order to determine whether the policy can be considered a non UK situated asset and therefore what savings, if any, can be made by the client with respect to his IHT bill, HMRC will now require greater tests to be carried out. This, said Skandia, does create an advice opportunity for advisers.
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.”
The new 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, added Skandia.
