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Zurich

  1. 1. Business protection masterclass David Butler Protection Proposition Manager For intermediary use only – not for use with your clients An opportunity for 2011
  2. 2. How will it all end? “ When you’ve got to go, you’ve got to go… but will it be by falling off a ladder, falling out of bed – or simply walking down the street?” * *Mail on Sunday 07.03.2010 1 in 258,326 Ignition of nightwear 1 in 35,904 In the bath tub 1 in 8,073 Falling out of bed 1 in 1,550 Food poisoning 1 in 207 Medical error
  3. 3. Agenda Why business protection? <ul><li>Traditional opportunities </li></ul><ul><li>Business liabilities </li></ul><ul><li>Keyperson protection </li></ul><ul><li>Shareholder and Partnership protection </li></ul><ul><li>New opportunities </li></ul><ul><li>Spousal by-pass trust </li></ul><ul><li>Relevant life policy trust </li></ul>
  4. 4. Likelihood of partner/director dying before 65 Average age of partner/director Source: based on Office of National Statistics Interim Life Tables for UK Males between 2005 and 2007 Number of partners/directors 2 3 4 5 10 30 28% 39% 49% 57% 81% 35 28% 38% 48% 55% 80% 40 27% 37% 46% 54% 79% 45 25% 35% 44% 51% 76% 50 23% 32% 40% 47% 72%
  5. 5. The business protection gap Business Opportunities There are 2.6 million registered companies in the UK* Fill the gap The business protection gap is estimated at £1.1trillion** *Source: www.companieshouse.gov.uk ** www.legalandgeneralcomms.co.uk
  6. 6. A new Income stream Multiple plans per company Higher sums assured Meetings during business hours
  7. 7. Traditional opportunites <ul><li>Business liabilities </li></ul><ul><li>Keyperson protection </li></ul><ul><li>Shareholder and Partnership protection </li></ul>
  8. 8. Business liability solutions ABC Ltd Director A £200,000 death or CIC £200,000 liability Life of another plan Director A dies £200,000 plan proceeds
  9. 9. Key person protection? <ul><li>Anyone whose loss, either permanent or temporary , would affect the company’s ability to maintain turnover and generate profits. </li></ul>2/9/2009
  10. 10. Key person protection <ul><li>Provides funds to: </li></ul><ul><li>Underpin profits </li></ul><ul><li>Enables business to recruit and train a replacement </li></ul><ul><li>Support cash flow </li></ul><ul><li>Maintain value of business/shareholding </li></ul>Risk and cash flow <ul><li>Provides time and space to re-organise </li></ul><ul><li>Decreases unwanted attention from creditors </li></ul>
  11. 11. ‘ Key person’ solutions ABC Ltd Director A £200,000 death or CIC Life of another plan Director A dies £200,000 plan proceeds
  12. 12. The issue <ul><li>Problems for owner A’s beneficiaries: </li></ul><ul><li>Own a share of a company they may know nothing about </li></ul><ul><li>Loss of owner A’s income </li></ul><ul><li>No buyer for shares </li></ul><ul><li>If buyer found, at what price? </li></ul><ul><li>Problems for owners B and C </li></ul><ul><li>New shareholder(s) could cause unwanted interference </li></ul><ul><li>Loss of control </li></ul><ul><li>Cannot afford to buy shares from beneficiaries </li></ul>Owner C Owner A Owner B Owner C Spouse A Owner B Owner C Owner B Ch ren ild A dies or even Traditional opportunities
  13. 13. Solution Double Option Agreement A POLICY IN TRUST Surviving Owners B and C B POLICY IN TRUST Surviving Owners A and C C POLICY IN TRUST Surviving Owners A and B
  14. 14. Spousal by-pass trust
  15. 15. How it works ABC Ltd no Spousal by-pass A A dies SHARES Mrs A Life Plan in trust Mrs A can force B&C to buy the shares or B&C can force Trusts to sell the shares Claim monies paid to trustees Trustees pay cash to B&C B&C buy the shares
  16. 16. What happens next? <ul><li>Spouse has cash instead of shares </li></ul><ul><li>Although Business Property Relief (BPR) was granted on A’s death, their spouse now has cash in their estate. This is now subject to normal IHT rules. </li></ul><ul><li>Worst case scenario, nil rate bands have been used and on the spouse’s subsequent death an IHT charge of 40% </li></ul><ul><li>Spousal by-pass trust can avoid the cash going into the spouse estate and a subsequent (IHT) liability. </li></ul>
  17. 17. How it works – ABC Ltd Spousal by-pass A A dies SHARES Spousal by-pass trust Life Plan in trust pays to B&C Trust can force B&C to buy shares or B&C can force trust to sell the shares Claim monies paid to trustees Trustees pay cash to B&C B&C buy the shares
  18. 18. Spousal by-pass <ul><li>Now the cash is in the by-pass trust not the spouse’s estate </li></ul><ul><li>The trust can lend the spouse cash, this then becomes a debt to the spouse’s estate and will have to be repaid on their subsequent death. </li></ul><ul><li>On the spouse death and settlement of any debts the funds are usually paid to the beneficiaries </li></ul>
  19. 19. Spousal by-pass set up <ul><li> Plan Spousal by-pass trust </li></ul>Life plan Flexible business trust Double option agreement Trust set up with Nominal value (£10) Will or codicil written To leave shares to Spousal by-pass trust Will or Codicil
  20. 20. Relevant Life Policy Trust
  21. 21. The legislation <ul><li>Section 393 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) which defines a relevant life policy in subsection 393(B)(4) </li></ul><ul><ul><li>Sets out the criteria which is summarised in these slides. </li></ul></ul><ul><li>Section 482 IITOIA 2005 </li></ul><ul><ul><li>States that tax avoidance must not be the main purpose of this arrangement. </li></ul></ul><ul><li>The Zurich Relevant Life Policy Trust satisfies all of the relevant legislation and the trust has received independent opinion by counsel (QC) </li></ul>
  22. 22. What is a relevant life policy? <ul><li>A single life policy, taken out on the life of an employee*, by an employer to provide death in service benefits. </li></ul><ul><li>Provides death in service benefits: </li></ul><ul><ul><li>for individual members over and above that of the main scheme. </li></ul></ul><ul><ul><li>where the number of employees is too low for a group scheme. </li></ul></ul><ul><ul><li>in a tax efficient way, compared to directors paying for benefits personally. </li></ul></ul><ul><ul><li>* Directors can also be employees, partners and sole traders can not. </li></ul></ul>
  23. 23. How does it work? <ul><li>Plan must: </li></ul><ul><li>be single life </li></ul><ul><li>life only (including terminal illness) </li></ul><ul><li>not include Waiver, Critical Illness or PPB </li></ul><ul><li>end before age 75 </li></ul><ul><li>Trust must be received pre-issue </li></ul><ul><li>Where financial underwriting is required the following limits apply: </li></ul><ul><ul><li>Up to age 40 20 times salary and benefits </li></ul></ul><ul><ul><li>Age 40 to 59 15 times salary and benefits </li></ul></ul><ul><ul><li>Age 60 and above 10 times salary and benefits </li></ul></ul>
  24. 24. Benefits of a relevant life policy <ul><li>Does not form part of an individual’s life time allowance </li></ul><ul><li>Does not form part of an individual’s annual allowance </li></ul><ul><li>Treated as a business expense (allowable deduction) </li></ul><ul><li>Not treated as a benefit in kind </li></ul><ul><li>Not assessable for NI (employer or employee) </li></ul><ul><li>Benefits paid free of Income Tax </li></ul>
  25. 25. Example: Cost to Ali as a Director paying personally Monthly premium = £200.00 Pre-tax Income to fund £200 at Income Tax rate of 40%* and National Insurance at 1%* = £338.98 Cost with employers National Insurance Contributions at 12.8% on this salary = £382.37 Gross Salary and National Insurance are allowable deductions against Corporation Tax at 21%* Total monthly cost to Ali and LBD Ltd Company = £302.07 Ali Ramat a shareholding director currently pays £200 a month for his life assurance. Figures based on HMRC Tax and NI rates applicable as at 01.12.2010
  26. 26. Example: continued Cost to Ali and LBD Ltd company paying personally = £302.07 Cost to LBD Ltd Company paying through RLPT = £158.00 Saving = £ 144.07 or over 47% Figures based on HMRC Tax and NI rates applicable as at 01.12.2010 LBD Ltd pays premiums through a relevant life plan Monthly premium = £200.00 No employee Income Tax or National Insurance No employer National Insurance Relevant life policy is an allowable deduction against corporation tax at 21%* Total Cost to LBD Ltd Company = £158.00
  27. 27. Thank you for listening Important information The tax and legislation information contained in this document is based on Zurich Intermediary Group current understanding as at December 2010 and may change in the future. HM Revenue and Customs (HMRC) practice, and the laws relating to taxation, are complex and subject to individual circumstances and changes which cannot be foreseen. The value of any investment and the income from it can fall as well as rise as a result of market and currency fluctuations and your client may not get back the amount originally invested. Zurich Assurance Ltd, authorised and regulated by the Financial Services Authority, for its life assurance, pension and investment products. Registered in England and Wales under company number 02456671. R egistered Office: UK Life Centre, Station Road, Swindon, SN1 1EL. For use by professional financial advisers only. This advertisement has not been approved for use with clients.

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