Standard Life Savings & Investment Ezine

Standard Life's Savings & Investment newsletter for advisers

Issue 1: Oct 2006

International Bond: a tax-efficient way for your clients to save for their children’s future.

Bringing up children in the 21st century can be an expensive business. And as many parents are finding, the expenditure doesn’t stop when their child hits eighteen. Students taking a three year university course starting this year are likely to pay £33,512 (1), the average cost of a wedding is £11,000 (2), and couples who are first time buyers have to find an average deposit of £29,200 (3).

Sources
(1)Natwest Student Money Matters Survey, August 2006
(2)WeddingGuideUK.com
(3)Quote from Royal Institution of Chartered Surveyors, as reported in The Guardian 24 August 2006.

So how can you help your clients to invest for their family's future, while making the most of their tax allowances? An offshore bond, such as the International Bond from Standard Life International, may be the ideal product for this type of planning.

It’s a virtually tax-free fund
If your clients are investing for children who don't pay tax, it can make sense to invest in a fund that pays virtually no tax.

Gifting is simple
Some clients will not want to get involved with the more complex areas of trust planning. However, gifting an offshore bond is simple -by completing an assignment form, your client can give the bond to any other adult they choose.

Gifting is tax efficient for your client and their children
By investing in an offshore bond under trust with a view to helping their children in the future, your client can minimise the tax both they and their children have to pay. Saving tax means that more of your clients' money goes to their children rather than the Chancellor.

Your clients can save inheritance tax (IHT)
In most circumstances, a gift to another individual would be a Potentially Exempt Transfer, so it would be outside the client's estate for IHT purposes after seven years. But there are some useful exemptions that a parent can use when gifting money to children. Each parent can give up to £5,000 free of IHT on marriage or a civil partnership. Generally speaking, provided it is for maintenance, education or training purposes, any payment made to a child in full time education is also exempt, reducing your client's estate immediately.

Your clients can save income tax
If your client is a higher-rate taxpayer and transfers the bond to a non-taxpayer or a basic-rate taxpayer, tax will be payable at the new owner’s rate. So if your higher-rate taxpaying client gives the bond to their non-taxpaying child before it is cashed in, more money will end up with the child. If the child has an unused personal allowance (worth £5,035 in 2006-2007), gains up to this amount can be drip-fed out, without any further tax to pay.

It offers flexibility for the future
If your clients' take out an offshore bond in their own names, they can control what their children get and when.Segmented bonds can play a part. Standard Life’s International Bond has 100 segments, so your client can assign one or any number of those segments to their adult children. Or if circumstances change, the money could be used for other purposes.

How to find out more
For more information on offshore investing or if there is anything more about Standard Life International we can help you with, please contact your Standard Life office or visit our International Bond area.

For more technical information, please visit Tech Zone. There you will also find askTECH, the question and answers database that offers you technical support at the touch of a button.

All of the information in this article is based on our understanding of law and practice in Ireland and the UK at the date of publication. Legislation and taxation are liable to change in the future.

No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of this content.