Inv- S/H Policies & Reversions- Ian McKeever & Co.

Second-Hand Life Policies.
An alternative to surrendering a Life Assurance policy is to sell it. This can be an attractive option as many companies charge penalties on early surrender. This also represents an opportunity for investors who can buy the policy and continue to pay the premiums.

Gains are generally subject to Capital Gains Tax although in some cases income tax may apply instead. Capital Gains tax has an annual allowance of £9,600 (tax year 2008/9) and will be charged at a rate of 18%. An investor can choose an appropriate term, as a number of policies are always available. The investment can be realised at any time either by surrender or resale but the process is not easy and may prove expensive, which in some circumstances might not be that unattractive a feature.

To the extent that returns depend on the Sum assured and declared bonus there is relative safety. However to the extent that returns depend on terminal bonuses there is risk, as these can be cut in adverse investment conditions. This means that a cut in terminal bonuses can result in investors losing money, the sums assured and declared bonus limit the extent of those losses.

Trust Reversions
It is also possible to buy reversions. Someone may leave a life interest in assets to a spouse with reversions to the children. That is the spouse has the right to the income from or use of the assets (such as house) during their lifetime and the assets then go to the children on the death of the spouse. Reversions can also be created with a view to providing an equity release mechanism for an owner who needs to realise from value from their homes.

The difficulties with this investment is that whatever the age of the life tenant there is little certainty as to when the reversion will fall in. In general the earlier the reversion falls in the greater the return. Potential IHT liabilities complicate matters further and there is uncertainty about the returns achieved on the underlying assets. However, as a general principle, if an investment has unattractive features that means that the expected investment returns are that much higher. This is an asset only worth considering for an investor who is relatively young and has substantial other assets allowing him or her to take a long view on the uncertainty surrounding the maturity date of such an investment.