Facets of life and annuity insurance coverage, asset protection

In the United Kingdom, capital-accruing life and annuity policies are widely established instruments for building retirement capital and preserving assets. Moreover, privately placed insurance contracts offer wealthy families the opportunity to influence capital preservation and the long-term development of the family’s assets by specifying and/or amending the contract’s underlying investment strategy within the scope of the so-called “personalised bond rules”. The value-preservation principles to be observed in conjunction with insurance contracts are asset diversification across several asset classes (such as stocks, fixed-income paper or commodities), the avoidance of solvency risks involving banks or financial product issuers, and the coverage of additional biological risks such as mortality or longevity risks.

Suitably formulated contractual provisions with various insurance companies in different jurisdictions can also offer a high level of protection against third-party access in seizure and bankruptcy proceedings before UK courts (for instance with respect to entrepreneurial liability risks or directors’ and officers’ liability claims).

Attractive fiscal aspects of insurance contracts

Correctly designed life insurance contracts are treated differently than assets in custody or real estate, for example. In Great Britain, insurance contracts that periodically pay out no more than 5% of the insured sum are not subject to periodic income tax.

Whether or not and how much tax is due when the benefits are paid depends on the nature and occasion of capital withdrawals under such contracts. In many cases, skilful contract design can result in interesting income, bestowal or inheritance tax effects even for the assets of very wealthy families.

Together with the client’s tax and legal advisers in the United Kingdom and elsewhere, swisspartners will develop suitable concepts.

Wealth transfer outside the estate

Benefit entitlements from insurance contracts, for example through trusts, are not in the estate of the testator if the contracts are suitably designed. As a result, subject to suitable long-term planning, estate tax-exempt wealth transfer scenarios can also be implemented in Great Britain. Contrary to a bank, for instance, an insurance company can pay out benefits even if no certificate of inheritance is submitted. Thus, the immediate legal competence of the successor after the decease of the asset owner is assured.

In many instances, the benefits paid out to next-generation representatives are income tax-exempt. For this reason, insurance contracts are ideal for wealth preservation across generations.

Tax privileges on relocation or for family members abroad

Privately placed insurance contracts are designed under consideration of the contract legislation and fiscal constraints of those tax jurisdictions in which the respective family members are domiciled. Properly designed contracts are not subject to ongoing taxation – not only in the UK but also in several other countries. A key aspect in the design of privately placed insurance contracts lies in reducing the overall fiscal burden of the tied-up assets in the event of planned relocations of the asset owner or if the beneficiaries are domiciled in various jurisdictions outside the United Kingdom.