This article defines the commonly used terminology (starting with letters P to Z) in the tax and financial planning arena or within Old Mutual Wealth.
A transfer of intangible property (e.g. life insurance policy) from one or more persons to another where at least one of the persons owns the property before and after the transfer.
Part assignment for consideration
The person(s) transferring the property by part assignment received either money or assets in return for transferring their ownership to another person(s). For example, A and B own a life policy and transfer ownership to B solely. B gives A money to the value of 50% of the policy.
Personal injury trusts
A trust used to protect both compensation capital and any benefit entitlements. The trust allows both income and capital to be received from the investment and as the money is in a trust it is not taken into consideration for the purpose of assessing any available benefits.
Personal portfolio bond (PPB)
A Personal portfolio bond is a single premium bond which gives the policyholder a wide choice of investments which can be linked to the bond, including stocks and shares.
A twelve month period starting on the commencement of the life assurance or capital redemption policy, or any anniversary of commencement.
Potentially exempt transfer (PET)
A transfer of value (gift) to one or more recipients which increases the value of the recipient’s estate. These transfers are not liable to UK inheritance tax provided the person making the gift lives for at least 7 years after the gift is made.
The most common potentially exempt transfers are:
- Outright gifts between individuals
- Transfers into bare or absolute trusts.
- Transfers into interest in possession and accumulation and maintenance trusts created before 22 March 2006.
- Transfers into trust for bereaved minors, or trusts created for the benefit of a disabled person.
- Transfers into trusts created on death which gives rise to an immediate interest in possession.
Power of appointment trust
- This is an interest in possession trust where the beneficiary of the trust has a right to income from the trust fund.
Power of attorney
A legal document that allows an individual (called the Donor) to designate another person (called the Attorney) to act on his/her behalf.
Pre-owned assets tax (POAT)
Introduced by Schedule 15 of the Finance Act 2004 to impose an annual income tax charge from 6 April 2005 in circumstances where taxpayers have successfully circumvented the inheritance tax (IHT) gifts with reservation rules, yet are still able to benefit from the asset transferred.
The document issued to executors by the probate registry in England and Wales (or jurisdictional equivalent) to authorise the executors to administer and distribute the estate in accordance with the deceased’s Will. In the Isle of Man, Manx Probate is granted by the Isle of Man courts. This would normally be required for Isle of Man situated assets.
A protector may be appointed by a settlor under a trust deed. The protector will be granted some powers over the administration of the trust. Their powers will not be as extensive as a trustee but they will oversee the running of the trust.
Under UK tax law, settled property means any property held subject to trust. Settled property situated in the UK is potentially liable to UK inheritance tax (IHT).
However, under S48(3) IHTA 1984, UK IHT does not apply to settled property situated outside the UK, unless the settlor was domiciled (or deemed to be domiciled) in the UK when the settlement was made. The charge to IHT relates only to the domicile of the settlor at the time the settlement was created and does not depend upon the domicile of a life tenant, or of the beneficiaries of a discretionary trust.
This means that if a trust is created when the settlor is not domiciled in the UK it will never be domiciled in the UK, even if the settlor becomes domiciled there later, or if any of the beneficiaries has a UK domicile.
A person who creates a trust by transferring ownership of their assets or lending money to their chosen trustees.
This is a legal framework based on Islamic principles.
A partner in marriage, a husband or wife.
Spouse exemption (also known as inter-spousal transfer exemption)
Husbands and wives and civil partners can give assets or money to each other both during their lives and on death (in their Will) without attracting any UK inheritance tax or capital gains tax.
Standard rate band
This is an allowance applicable to the taxation of trusts in respect of UK income tax.
The first £1,000 of taxable income, which would otherwise be chargeable at the rate applicable to trusts (45%) or the dividend trust rate (37.5%), is instead chargeable at the basic rate (20%), or dividend ordinary rate (10%), depending on the nature of the income.
The fiscal year.
In the UK this is the twelve month period commencing 6th April and ending 5th April the following year.
A person who makes a Will. Testatrix is the feminine equivalent.
An arrangement by which a settlor transfers property to one or more trustees who will hold it for the benefit of one or more persons, know as the beneficiaries.
A person having title to property that he holds for the benefit of one or more others known as the beneficiaries. Trustees can be individuals or corporate bodies such as Old Mutual International Trust Company. It is the trustees’ responsibility to manage and ultimately distribute the trust fund to the beneficiaries.
Unit linked fund
A type of fund offered where each contribution is linked to individual units within the fund. The investment benefits are therefore directly in proportion to the number of units within the fund. These units are notional and are only used for valuing the investment.
A life assurance contract issued by a UK life office, which usually offers 101% of the encashment value of death of the relevant life assured.
Wealth tax is generally imposed on individuals annually. It is usually calculated as a percentage of their net worth or a percentage of their net worth which exceeds a certain level. For example, in France, an individual is liable to wealth tax which is at a progressive rate from 0 to 1.5% (from 2013) of net assets , where the net value of the taxable asset exceeds a certain level on 1 January in the tax year concerned.
A document by which the testator or testatrix appoints executors to administer his or her estate after his or her death. The Will also directs the executors as to who will benefit from the Will and how to distribute his or her estate. The Will must comply with the requirements of a Will in the country where the assets are situated.