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Prudence Inheritance Bond

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.

  • Potential to reduce estate value for IHT
  • Tax-efficient withdrawals
  • Potential Income Tax benefits
  • Tax-efficiency on death
  • A natural income stream
  • Opportunity for long-term capital growth

Key Information Documents (KIDs)

These documents are provided for the products listed below and the funds that are available to new investors through these products.
  • Potential to reduce the prospective Inheritance Tax liability immediately.
     
  • Potential Income Tax benefits: unlikely to give rise to a chargeable event gain on death, which could mean a substantial saving.
     
  • A natural income stream: it pays the income naturally generated by the investment, so this will not eat into the beneficiaries' inheritance.
     
  • Flexibility to take or save the natural income: any income not required can be reinvested for the future in a choice of funds and taken at any time.  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.
     
  • Withdrawals: your clients can help maintain their lifestyle by accessing reinvested natural income at any time.
     
  • Capital growth: an opportunity for long-term capital to grow on the investment and provide a payment to the beneficiaries of the trust.

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:

  • the potential to reduce the prospective IHT liability immediately,
     
  • the facility for the client to take regular payments to help maintain their existing lifestyle, and
     
  • the opportunity for the gifted capital to grow

But Prudence Inheritance Bond has been designed to do more than this. Its exceptional structure means that it offers a number of distinctive features.

  • A natural income stream: it pays the income naturally generated by the investment, so this will not eat into the beneficiaries’ inheritance. The natural income is not fixed – the value of the bond may fluctuate and is therefore not guaranteed - but the fund is managed in a way that aims to keep payments steady over time.
     
  • Flexibility to take or save the natural income: any natural income not required can either be redirected into a choice of funds and taken at any time or saved for the future.  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.
     
  • Lump sum withdrawals: it is possible to withdraw lump sums from the Endowment Plan but these can only be taken from the value of any natural income that has been previously redirected into funds held under that plan.  Your clients can take up to 5% of each investment without having to pay immediate income tax. They might have to pay income tax if over this allowance. This is based on our current understanding of current tax legislation and HM Revenue & Customs practice, both of which may change without notice. The impact of taxation depends on individual circumstances.
     
  • Potential Income Tax benefits: the bond is designed to reduce the potential for Income Tax, particularly on the death. This could mean a substantial saving. 

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.

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:

  • be taken in full as natural income, paid on 1 March, 1 June, 1 September and 1 December
     
  • be capped at 5% per year of the Endowment Premium to ensure that natural income paid out (including any Ongoing Adviser Charges) will not give rise to a chargeable event under the 5% a year tax-deferred withdrawal rules until the total of natural income paid out is greater than the premium for the Endowment Plan. Any natural income above the cap can be redirected into up to 3 funds of your client's choice, or
     
  • redirect the full natural income into up to 3 funds of your client’s choice

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).

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:

  • Annual Management Charge (AMC)
     
  • Adviser Charges

You can find out more about the charges in the Key Features Document (PDF) and in the Fund Guide for the funds, including those that natural income can be redirected into.

Prudential reserves the right to vary the Annual Management Charge.