The Prudence Inheritance Bond is a discounted gift plan with the potential to reduce your clients' liability to Inheritance Tax and offers the opportunity for gifted capital to grow while they take income.
Please remember that the value of an investment, and any income from it, can go down as well as up. Beneficiaries may not receive the amount originally gifted into trust.
The Prudence Inheritance Bond is a well-established plan designed with the aim of meeting key requirements for effective Inheritance Tax (IHT) planning.
Similar to a standard discounted gift trust, capital is gifted into trust, while the client gets regular payments and the value of the gift may be immediately discounted for IHT purposes.
The plan provides:
But Prudence Inheritance Bond has been designed to do more than this. Its exceptional structure means that it offers a number of distinctive features.
Your client can invest a single payment of at least £15,000 as either an Absolute trust or Discretionary trust (after deduction of any Set-up Adviser Charge if applicable).
Please download the Key Features document (PDF) for more information.
The bond consists of two plans - the Endowment Plan, which provides an income until your client dies or until maturity - whichever comes first, and a Whole of Life Plan, which holds your clients gifted capital plus any growth and provides a capital sum on their death.
Due to the structure of the bond, neither the Whole of Life Plan nor the Endowment Plan has a surrender value and it is not possible to surrender either of them.
Switching is not permitted on the Prudence Inheritance Bond Capital Fund or Income Fund. However, switching of redirected natural income is permitted. Switching charges do not apply however we might change our charges in the future.
The Prudence Inheritance Bond is suitable for:
The minimum age at entry is 18 next birthday.
The maximum age at entry is 90 next birthday.
The bond is available on a single life or joint life basis.
The minimum investment is £15,000, after any Set-up Adviser Charge deductions.
If the customer wishes to make any additional investments, they cannot be added to the existing investment. A new Prudence Inheritance Bond would have to be established.
As your client is entitled to regular payments of natural income, the value of the initial gift may be discounted for Inheritance Tax purposes. As a result, the potential tax liability on the estate may be immediately reduced when the trust is set up.
The discounted value takes into account the value of the regular payments your client could expect to receive during the rest of their lifetime. This will depend primarily on age and state of health.
The actual amount will be decided by HMRC if or when a charge arises, but we will provide an indication which may help in any negotiations. Our Discounted Gift Calculator can provide an estimate of the discount.
The Prudence Inheritance Bond can be written on either an Absolute or Discretionary basis, depending on your client’s needs.
Your client must select the beneficiaries and their share of the trust fund when setting this up. May be suitable if your client is sure of how they would like trust assets to be distributed.
Trustees have the discretion to make distributions to anyone from a wide class of beneficiaries. May be suitable if your client is unsure who they would like trust assets to be distributed to.
All of the capital assets are held within the Prudence Inheritance Bond Capital Fund. Any income produced by the capital assets is temporarily housed in the Prudence Inheritance Bond Income Fund.
The Income Fund pays out accumulated natural income at the end of specific three-monthly periods. These payments are credited to the Endowment Plan and can either:
Please note that any natural income saved and waiting to be paid will be included in your client's estate for IHT purposes and may incur tax liabilities.
For more information about the range of funds available, please see our Prudence Inheritance Bond fund guide (PDF).
The amount your client's beneficiaries receive on death is not guaranteed and will depend on:
On your client's death, the Whole of Life Plan under their bond ends (if the bond was taken out on the lives of two people, it will end when both lives assured have died). At this point, we'll pay out the value of the units in the Prudence Inheritance Bond Capital Fund.
Your client's personal illustration shows how much your client and their beneficiaries could receive. Please remember that the amounts shown in the illustration are not guaranteed.
If your client dies before their Endowment Plan matures, we'll pay out a death benefit of £100 plus the balance of any natural income waiting to be paid and the value of any natural income which has been re-directed.
If the Endowment Plan matures, at the policy anniversary after age 105 (based on the younger life for joint policies), we will pay out:
We have structured the Prudence Inheritance Bond to reduce the potential for Income Tax, notably on the death of the settlor.
99% of the clients total premium into the Prudence Inheritance Bond is the premium for the Endowment Plan (i.e. 99% of your client’s payment after any Set-up Adviser Charge is deducted). Importantly, this gives the maximum 5% tax deferred allowance as all natural income paid out (including any ongoing adviser charges) and withdrawals taken count against this allowance.
The premium for the Whole of Life Plan is 1% of the client's total premium into the Bond.
Your client may have to pay Income Tax if they survive until the maturity date of the Endowment Plan or if they transfer ownership of the Endowment Plan in return for money or something of value before the maturity date.
The main charges will be:
Prudential reserves the right to vary the Annual Management Charge.
We will take a charge every year to cover the cost of setting up the plan and managing the investments.
There are also further costs which aren't covered by the Annual Management Charge. These can include, for example, maintenance costs for property investments and costs associated with investing in infrastructure, such as utilities, transport and renewable energy. These can vary over time.
Here are the current levels:
|Type Of Bond||AMC (%)||Further Costs (%)||Yearly Total (%)|
|Prudence Inheritance Capital Fund||0.75||0.01||0.76|
|Prudence Inheritance Income Fund||0.75||0.01||0.76|
The AMC is reflected in the unit price for the funds listed, and so too are any Further Costs.
Further information on how much we charge for each fund can be found in the Prudence Inheritance Bond Fund Guide (PDF) which you can share with your clients.
The level and shape of Adviser Charging is agree between the individual Adviser and the client. There are two types of Adviser Charge.
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"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at 5 Central Way, Kildean Business Park, Stirling, FK8 1FT. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company Limited. The Prudential Assurance Company Limited and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc which is a holding company registered in England and Wales with registered number 11444019 and registered office at 10 Fenchurch Avenue, London EC3M 5AG, some of whose subsidiaries are authorised and regulated, as applicable, by the Prudential Regulation Authority and the Financial Conduct Authority. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.