Moving funds from an investment bond trust

[weaselyeyes]

When my dad died about 18 years ago he left me some money. A friend of a friend was an SJP adviser and gave me some advice that was not necessarily very good and quite costly - which I now understand is fairly standard for SJP. Anyway, all that remains from this is a small investment trust I set up for my daughter, who was a toddler at the time. I did my will and left everything to her, but put £5k in an investment bond trust through SJP with a proviso that she should receive it when she was 25 (in case she'd spent everything else by then). I then ignored it and really can't remember many of the details about setting it up, other than I think it's technically still in my name. After about ten years I had a query from HMRC about it, contacted them, and didn't owe any tax on it. It's now worth about £12k.

I'd like to transfer it to a more straightforward index tracker fund of some description with lower charges as I think that would give better returns. I wouldn't touch the money as I still see it as for my daughter, but in theory would like to be able to give it to her whilst I'm still alive if she needed it. However, I am not knowledgeable at all about these things, and am concerned that by moving it I might trigger some sort of tax liability. Should I be trying to transfer it to a different kind of trust or just putting it in a S&S ISA in my name? Is anybody able to advise me? I'm reluctant to ask SJP as I feel they'll just try to convince me to stay with them and potentially misadvise.

This is a complex issue and I'm not an expert in this field, so check out any information for yourself and take advice. In your circumstances you need to research whether the trust and the investment bond is suitable for your circumstances - it may well be as it has a number of tax advantages.

There are two hurdles to contend with and they are both fiendishly tricky to navigate:

1. The Trust. This is a legally enforceable arrangement. You cannot transfer the investments to your name, even if you are the trustee in most cases (depending on the type of trust). The type of trust will also specify the parameters of your involvement if you are a trustee - such as if you're able to make investment decisions, or change the investments. You have a duty to act in the best interests of the beneficiary (your daughter). If you are not a trustee it is very likely you have no control or say over the investment decisions.
2. The investment bond. This is a single premium life insurance product used mainly for investment. It has a unique tax structure that can prove advantageous for trust investments. If you are the trustee and the trust permits you to make investment decisions, it may be possible to transfer the investment products within SJP to better funds and reduced fees - it depends on the terms of the product and whether it would be classed as a chargeable event.

Investment bonds can allow up to 5% of the original investment to be withdrawn each year by the trustee for the benefit of the recipient, without triggering a chargeable event, but it will depend on the specifics. It may also be possible, as a trustee, to assign the trust to your daughter once she is 18 (again depending on the trust) and for her to cash it in if she has a lower tax rate. There may be other tax reliefs available to her to mitigate tax liabilities.

You would probably need specialist advice to navigate this and you would need to calculate if the cost is viable for a £12K investment.

I would start by contacting SJP to research the type of trust; whether you are a trustee; and what are the terms of the specific trust in the first instance. Then look into how much flexibility you have to make investment decisions (such as withdrawing 5% yearly - this might be your easiest option, though be clear on the tax implications of a tax deferred withdrawal before proceeding; or transferring it early to your daughter to cash in).

This site gives a good summary of Investment bonds in trust and taxation:
https://connect.avivab2b.co.uk/adviser/articles/tech-centre/investment-and-tax-planning/personal/investment-bonds-in-trust-taxation/#:~:text=These%20features%20provide%20trustees%20with,tax%2Defficient%20distributions%20to%20beneficiaries.

It might also be worth thinking about whether you believe you were mis-sold the product by SJP and if you wish to make a complaint.
This site gives some guidance on how to decide if you might have been mis-sold, and if so, how to make a complaint.

www.moneyhelper.org.uk/en/everyday-money/credit/financial-mis-selling-what-to-do-if-you-think-its-affected-you

Just to add to my previous reply...

Can you recall if the SJP adviser initially discussed your risk appetite for the investments? Did you lean towards low risk? If so then the £12K net of fees equates to about a 5% return each year after 18 years, which is well within the usual parameters of a low risk option forecast, even taking into account the high fees.

It might be worth discussing with them if options are available for moving to higher risk investments for potentially bigger returns within the current investment bond - though this comes with greater volatility and risk and possibly additional fees. If your daughter is already 18 and can access the fund at 25 the timescale might be too short to make this a viable option.

Thank you so much for replying! I don't know that I was mis-sold as such, more that I'd never had any money or used a financial adviser, and was naïve about the whole process. That's partly why I was trying to find out a bit more about what is possible before speaking to SJP, so I could assess any advice they might give me more sensibly now. I made other investments also at the time which I subsequently liquidated, so this is all that remains of my SJP dealings. With hindsight, I really underestimated how stressed I was in the aftermath of my father's death, being a single mother and having a demanding job. I probably took things at face value and honestly can't remember much from that period. You're right that there's a lot of info I need to clarify with SJP.

I think the proviso that my daughter should receive the trust when she was 25 was just in my will were I to die before this point. Otherwise, my understanding (which I clearly need to check) was that it technically remained my money unless I transferred it to her. Ideally I'd like to try to invest it in such a way that it would grow more for her over the long term. If I could do that myself, it would stop her being tempted to spend it (though she's quite sensible). I have told her about it in the past, but I'm not sure it's really on her radar, so it would be a nice surprise at some point in the future to be able to present her with more. Alternatively, if I couldn't easily change it myself - and I've only recently become aware of how much detrimental impact a provider like SJP charging high fees can have - then I wonder if it would be better to ask them to transfer it to her now and then perhaps she could withdraw all or some and invest it elsewhere. She's currently a student and 0% tax payer, whereas I'm a higher rate.

I'm so grateful for your thoughts and the useful links.

It sounds like you were making the best decisions you could with the knowledge you had at the time for your daughter.

If the investment bond is in your name and not in trust, I think this is very good news indeed. It's likely you may be able to access most of the fund in a lump sum by using the 5% rule without tax penalties, as follows:

Each year you can withdraw 5% of the investment without a tax liability.
As I understand it, the tax liability only kicks in if there is a chargeable event.

The 5% per year is cumulative for past years, so you can add up previous years 5% allowances by calculating the value of the fund each year for the past 18 years (SJP should do this for you as they will have the correct figures). This gives the total you can withdraw from the fund without a chargeable event. There is no time limit on the number of years you can carry forward.

www.mandg.com/wealth/adviser-services/tech-matters/investments-and-taxation/taxation-of-investment-bonds/tax-deferred-allowance-bonds#:~:text=Q.,incurring%20an%20immediate%20tax%20charge.

In your shoes, I would ask with SJP to calculate what you can withdraw under the 5% rule cumulative as a lump sum from the investment, without triggering a chargeable event. If the fund has grown on average about 5% a year I think it might add up to about £9K as a rough guide, but returns fluctuate so I might be totally off the mark.

Then either withdraw another 5% in the following tax years going forward, or in the next tax year ask SJP the tax liability of the remaining fund if you withdraw it all. As I understand it, the tax is calculated at 45% of the withdrawal, but 25% is already assumed to be paid within the investment portfolio, so a remaining 20% rate would be liable.

SJP may also have their own charges for liquidating the investment so clarify this before proceeding.

I would reiterate that an investment bond might well suit your circumstances so be sure to investigate this before deciding to ditch it. I'm not a financial adviser and I don't have a full picture. My understanding of the 5% rule is rather basic and I don't know all the nuances and pitfalls - SJP should be able to explain all your options clearly. You are paying them enough commission to expect good, reliable and concise advice on this.

Thank you again! I realise I'll have to check the specifics very carefully, but you're giving me a very good insight into what the likely issues are, the language to use and what might come up. I think the bond is definitely in a trust, but the only trustee can be me, as there's no one else. I hadn't heard about the 5% rule, so it's useful to know that that might be a possibility in certain circumstances, and it's something to investigate along with potentially transferring it all to my daughter.