• So called ‘tax free’ savings could lead to a clients potential inheritance tax threat
• AEGON Scottish Equitable urges IFAs to alert their clients of the potential tax liability if ISAs and PEPs

AEGON Scottish Equitable is warning advisers to be aware of their clients’ potential inheritance tax liability that may be incurred if they have amassed a large portfolio of tax free savings such as PEPs and ISAs.

AEGON Scottish Equitable says the problem with these investment products is that many individuals may have invested in these tax-free savings products for years thinking their money was in a safe, tax-free environment. But although they are free of income tax or capital gains tax during the individual’s lifetime, on death, they form part of the estate for inheritance tax. This means that if their estate is above £312,000 (the nil rate band for 2008/09), they will be taxed at 40% on death on assets above this amount.

AEGON Scottish Equitable has calculated that an individual who has taken their full PEP or ISA allowance since this type of investment was launched in 1987 would now have amassed in the region of £360,000 assuming that their investments had grown at the same rate as the average unit trust.*

And although stock markets have fallen in the past year, this is still well over the current nil rate band which could have a major and unexpected impact on the value of their estate.

Margaret Jago, Technical Manager at AEGON Scottish Equitable said:

“Many people are not aware that although PEPs and ISAs are tax free, they are not exempt from inheritance tax. Financial advisers have a central role to play here in calculating the value of their clients portfolio and advising them accordingly.

“Even when we consider all of the negative press surrounding potential drops in house prices, latest figures from the Halifax tell us the average house in the UK stands at just over £184,000** and in Greater London the price is over £300,000 with many individuals having other investments on top of that.”

AEGON Scottish Equitable is therefore urging advisers to review their clients’ investment portfolios and be aware that investing the maximum amount into these types of investments over a period of time could take them over the threshold, leading to a tax liability.

Notes to editors

• AEGON UK has assets under administration of £53.2 billion and employs around 4,000 staff. AEGON UK is part of the AEGON Group, which is one of the world’s largest listed insurers and has assets under management of £245 billion.
• *Source: Lipper, IMA UK All Companies sector average. The figure is based on single sum investments of the above amounts on 30 April each year to 30 April 2008.
• **Halifax House Price Index May 2008. Average house price in the UK was £184,111. For Greater London the average price for quarter 1 2008 was £304,781

For further information

Kevin Brown
AEGON
T. 0131 5492859 | M. 07740 897282
kevin.brown@aegon.co.uk