Is this a bad idea?
An adviser has come up with an idea which I am unsure about but he's convinced it will work.
Clients are a married couple in their mid 80s. Both higher rate taxpayers but kept under £100k to preserve personal allowance.
Amongst their very large asset base are two offshore bonds.
These are no ordinary bonds. They are of a type whereby 999/1000 segments could be surrendered and all the gain fell onto the final segment. Needless to say, HMRC ended this wheeze years ago but the bonds remain in place.
One of them did have this withdrawal made before it was stamped out so it has only one segment and a gain of about £1.35m.
The other still has all 1,000 segments but if anything is done to it other than taking a 5% withdrawal, it reverts to being a single segment policy. The gain on this one is about £2.5m.
On assignment, both bonds auto-surrender in full.
I have been arguing for years that something needs to be done about these bonds because the income tax will be payable on death (both policies are joint lives assured) plus IHT. If we incur the income tax now, at least we could do some IHT planning and try to mitigate that. This argument has finally been listened to but the solution is not exactly what I was hoping!
The proposed solution
The adviser thinks that the way forward is to assign both bonds into a new Ltd company.
On assignment, both bonds will auto-surrender giving the Ltd Co a pile of cash and a large tax bill, but one that is significantly lower than the income tax bill would be on the clients (19% corporation tax vs mostly 45% income tax).
The clients are happy to have an investment company which could potentially be used to buy further business assets that would fit with their existing business interests. Alternatively, family members could be introduced as shareholders and funds extracted to them that way.
The clients have absolutely no need for income or capital from these investments.
Does anyone have any thoughts on this?
Happy to provide more detail if I've missed anything that you think might help.