A Guide To Life Insurance - The Major Use Of Whole-life ....

 

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The Major Use Of Whole-life...

Probably the major use of whole-life cover today is in planning for the transfer of assets from one generation to the next, whether these assets are family heirlooms, a farm or a family business.

The impact of taxation today, especially of capital transfer tax, can be disastrous, requiring the payment of large amounts which may force the sale of a family company, or part of a farm, or require the dissolution of a partnership.

Though whole-life protection at the higher ages is not cheap, it is still good value for money when set against the problems it can solve.

One effect of inflation has been that families which have somewhat above-average incomes, and have saved as opposed to spending them, often end up with sufficient assets (whether in the form of houses, land, shares, bonds, deposits, unit trusts, furniture, boats, jewellery, antiques, coins, stamps, paintings or whatever) to make them liable to CTT.



The tax is levied at progressive rates on gifts during life, and at a steeper set of rates applicable on an estate left at death.

The tax is levied at nil rate on the first £225,000 worth of gifts, so that, if someone had made gifts of £225,000 during life, everything he or she left at death would be taxable; for someone who had made no gifts, everything over £225,000 would be taxable.



Though there are certain exemptions (for instance, up to £22,000 per annum may be given away by each individual without creating any tax liability, and transfers between a husband and wife are usually exempt from tax), the final burden can be substantial.



The complexities of CTT are beyond the scope of this website, so in Examples 7 and 8 that follow we shall simply assume a level of tax liability without going into detail.


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Read On: click here for The Whole-life Policy Examples - More


Example
Mr Carter, a widower of 63, has built up a business he would like to pass on to his son.
His liability to CTT on death would be £300,000, and so he takes out a non-profit whole-life policy with a £300,000 sum assured.
The policy is written under trust for the benefit of his son. If this were not done, the policy proceeds would be added to his estate and also attract tax, but in this way the proceeds will be exempt.
The annual premium is about £2700........ see: click here for The Whole-life Policy Examples - More


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