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LEGAL & FINANCE: Passing on assets via Europe.

Byline: By John Duckers Business Editor

The wealthy may have to look to Europe to beat Gordon Brown's inevitable clampdown on inheritance tax loopholes, a Midlands financial planning specialist has warned.

Edgbaston-based Jobson James believes the forthcoming Budget will make it even more difficult to avoid the taxman when passing down wealth and that people ought to act now if they want to safeguard their hard-earned assets.

Managing director Richard Venner said the issue had become increasingly acute in the past decade as the surge in the average house price far outstripped the rise in the inheritance tax threshold.

"The average price of a house since Gordon Brown took over at the Treasury has increased by 140 per cent to well over pounds 200,000 while the inheritance tax threshold has increased by just 30 per cent to pounds 285,000," said Mr Venner.

"So while this was once an issue that troubled just the very well off, now as the average house price creeps ever nearer that threshold figure, this issue could soon catch million of UK households unawares."

The most common way of avoiding paying death duties is to transfer all assets to the intended beneficiaries before death - the only caveat to that is if death occurs within seven years of a lifetime gift then some tax becomes payable on the gift but considerably less than the flat 40 per cent levy.

This solution is not without problems however, particularly for the very wealthy who may have concerns about the maturity of those receiving the gift at that time.

Mr Venner said: "For most people the idea of giving significant wealth to children or grandchildren now, without qualification or condition, is out of the question.

In recent years the "accumulation and maintenance trust" has emerged as one of the most popular tools to give whilst still minimising tax liabilities and imposing some conditions over the use of the gift.

Essentially the trust "accumulates" while being used for the "maintenance" of the beneficiary but would only pay out capital at a predetermined age such as 25.

But since last year's Budget, Mr Brown has sought to make transfers into this type of trust - of which there are around 50,000 in the UK - taxable and he could well further formalise these arrangements at the forthcoming Budget.

A solution to the problem of giving but limiting beneficiary control without suffering a tax penalty is emerging from the life insurance industry after a difficult 12 months.

Mr Venner said: "Offshore life insurance, usually from the Isle of Man, was often used with accumulation and maintenance trusts to provide a solution to both income tax and inheritance tax planning in a simple and affordable way but their accumulation and maintenance products were quickly withdrawn after last year's Budget.

"In continental Europe the concept of the trust is not widely recognised but parents and children still have just the same characteristics as in the UK. Parents still want to give but limit control and giving a life insurance bond with build in restrictions has been a common practice.

"Along with Dublin, Luxembourg is the largest centre for cross border life insurance in Europe and the largest cross border insurance company in the country is Lombard International Assurance which focuses exclusively on tax and estate planning for wealthy families.

"Lombard's new plan does not use a trust. Instead it builds in trust type planning to a customised offshore bond, achieving both the estate planning and tax planning advantages the popular trust structure enjoyed before HMRC intervened."

With the policy issued by a Luxembourg life company, the investments will also enjoy the tax-free roll up of an offshore bond.

john duckers@mrn.co.uk

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Richard Venner
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Feb 23, 2007
Words:623
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