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WHY OFFSHORE BONDS FOR TRUSTEE INVESTORS

Gavin Jobson-Wood

Investment Development Manager

For financial adviser use only

Agenda

Who’d be a trustee in 2009?

How can offshore investment bonds help?

How can we help?

Increase in taxation

• From 6th April 2010, trust income tax rates will increase from:

32.5% to 42.5% for dividend income

40% to 50% for all other income

Affected trusts will not benefit from the £150,000 income limit applying to individuals. (But £1000 basic rate band remains)

The trustee investor faces unique challenges

Greateraccountability

Increase in taxation

Falling interest

rates

Market

volatility

Trustee Act 2000

Trustee duties

• Wide investment power

• Standard investment criteria

• Investment advice

Standard investment criteria

• Suitability to the trust

• The need for diversification

• Review trust investments from time to time and consider if they should be varied.

Consider ‘proper’ investment advice

• Proper advice is advice of a person who is reasonably believed by the trustee to be qualified to give it by ability and practical experience of financial and other matters relating to the proposed investment.

Every trust with an appointed adviser must have a written investment policy statement

• Overall level of return and yield

• Income and capital requirements• Ability to distribute capital in place of income• Nature and timing of liabilities• Liquidity requirements• Time horizons of the trust• Base currency

Who’d be a trustee in 2009?

Every trust with an appointed adviser must have a written investment policy statement

• Time horizon of performance• Residency and tax status of the trust• Residency and tax status of the beneficiaries• Social responsibilities• Tax and/or legal restraints

Who’d be a trustee in 2009?

Trustee Investment – Benefits of bonds as trust investments

Trust

Offshore Bond

OEICSInv

Trusts

Bank A/C

No CGT on switching assets

Limited tax administration

Tax deferral possible

Trustee investment

Trust

Bond

SegmentSegment

Segment

Segment

Segment

Segment Beneficiary

Beneficiary encashes at their tax rate

CMI Global Investor

Online quotes

& valuations

Discretionary

Management

Institutional

terms

Open

architecture

Superior

service

Gross interest

payments

Discounted

fund terms

SIPP &

SSAS

Gross returns – the benefit

Source: Lipper Hindsight, Returns: sterling returns; Tax basis - net for IP Corporate Bond Acc and sector, gross for IP

Corporate Bond Gross Acc; Total return, no initial charges.

The value of an investment can go up and down as a result of market movements. You may get back less than you invested. Past performance is not a reliable indicator of future performance.

Invesco Perpetual Corporate Bond Acc (MF)Invesco Perpetual Corporate Bond Gross Acc (MF)

IMA £ Corporate Bond (IN:IN)

Percentage Growth Total Return, Tax Default, In LC

70 Months From 30/09/2003 To 31/07/2009

Perc

en

tag

e G

row

th

-10

-5

0

5

10

15

20

25

30

01/2004 07/2004 01/2005 07/2005 01/2006 07/2006 01/2007 07/2007 01/2008 07/2008 01/2009

29.4

22.1

4.7

• Guide to trustee investment

• Standard investment criteria guide

• Statement of investment principles guide

• Portfolio Architect

• Offshore bonds v OEICs calculator

Marketing support

Offshore bonds v OEICs calculator

Offshore bonds v OEICs (example figures)

OEIC Offshore bond

TermHigher rate tax

payerHigher rate tax

payer

5 £550,670 £564,640

10 £606,480 £643,220

20 £735,630 £854,810

£500,000 investment,100% into fixed interest

Assumptions

Charges have been set to be equal so this is a direct comparison for tax. In reality, the total charges will vary from product to product. All products have 1% AMC (plus 0.02% assumed dealing costs) only. Investor's tax status remains the same throughout. For OEIC only one assumed CGT allowance is used at the end of the term. OEIC Charges are paid from income. Higher rate tax payments on the income from the OEIC are taken from the fund. CGT allowance grows with inflation of 2.5%.

• Email enquiry service*: financialplanning@scottishwidows.co.uk

• Fax: 0117 376 4005 *

*PIN number required.

Technical support

CMI

www.clericalmedical.co.uk

CMI Insurance Company Limited, Clerical Medical House, Victoria Road, Douglas, Isle of Man IM99

1LT, British Isles. Registered No. 33520, Isle of Man. Telephone: +44 (0)1624 638888. Fax: +44 (0)1624 625900.

Approved by Clerical Medical Financial Services Limited, 33 Old Broad Street, London EC2N 1HZ. Registered No.

2114901, England.

Clerical Medical Financial Services Limited is authorised and regulated by the Financial Services Authority.

Financial Services Authority rules are made under the Financial Services and Markets Act 2000 for the protection of

investors and apply to investment business conducted in or from the UK. Holders of policies issued by the company

will not be protected by the Financial Services Compensation Scheme if the company becomes unable to meet its

liabilities to them. CMI Insurance Company Limited is supervised by the Isle of Man Insurance and Pensions Authority

and its policyholders receive the protection of the Life Assurance (Compensation of Policyholders) Regulations 1991.

This presentation is aimed at financial adviser only. If you reproduce any part of this information to use with retail

clients, you must ensure it conforms to the Financial Promotions rules. In addition, if used to advise retail clients, you

are subject to the advising and selling rules. This information is based on our understanding of current legislation and

Revenue practice, which is subject to change. Full details are available from CMI Insurance Company Ltd on request.

Sept 2009