Surrendering Endowment Policy - tax implications?

Surrendering Endowment Policy - tax implications?

Author
Discussion

Piglet

Original Poster:

6,250 posts

256 months

Thursday 17th January 2008
quotequote all
Help please!

Am I correcting in thinking that if an endowment policy is surrendered it is not taxable unless the person is a higher rate taxpayer?

driverrob

4,692 posts

204 months

Thursday 17th January 2008
quotequote all
The money you paid into it was taxed first.
I paid no tax on mine.

Piglet

Original Poster:

6,250 posts

256 months

Friday 18th January 2008
quotequote all
driverrob said:
The money you paid into it was taxed first.
At one point, this was good logic but as now I seem to be paying tax on money that has been taxed several times over I'm not so sure laugh

Did you declare yours on a tax return?

Simpo Two

85,543 posts

266 months

Friday 18th January 2008
quotequote all
driverrob said:
The money you paid into it was taxed first.
Doesn't stop them taking IHT though does it! Or VAT on fuel duty...

Eric Mc

122,055 posts

266 months

Friday 18th January 2008
quotequote all
Surrendering insurance/pension policies can have income tax or capital gains tax imploiications. The key things you need to be aware of:

how long has the policy been in operation?

how much was received on surrender?

what type of policy was it?

Piglet

Original Poster:

6,250 posts

256 months

Friday 18th January 2008
quotequote all
Hi Eric, thanks for that.

It's a unit linked endowment policy that has been running since 1989, surrender value seems to be around £10k

Is there anywhere straightforward that I can look to check?

Eric Mc

122,055 posts

266 months

Friday 18th January 2008
quotequote all
What paperwork did you get from the endowment provider? There might be a FAQ type section in the original or subsequent paperwork explaining what happpens when the policy ends.
It might be worthwhile talking to them directly about what tax procedures need to be followed if and when the policy is closed down prematurely.

The last and worst place to look would be the Revenue's own web site as it will contain far too much information and you won't know what relates to your specific product.

Your product is almost 20 years old so there may be no tax implications at all. Many of these policies move into a tax free zone once they last longer than ten years. Obvciously, as I say above, talk to the providers and see what they say.

Edited by Eric Mc on Friday 18th January 10:04

Piglet

Original Poster:

6,250 posts

256 months

Friday 18th January 2008
quotequote all
Thanks again Eric, I'll get hold of the paperwork that has gone to the IFA and then give the provider a call.

Cheers

Piglet

Original Poster:

6,250 posts

256 months

Friday 18th January 2008
quotequote all
An update in case this is useful to anyone else...

I've spoken to the provider, they *think* the policy is qualifying in that there won't be any tax and they say that even if it is taxable then it will only be on the "gain" over and above what has been paid in....now unsurprisingly that gain is only around £450!

What they can't tell me is whether anything that is taxable is taxed as CGT or income tax.


Eric Mc

122,055 posts

266 months

Friday 18th January 2008
quotequote all
If it's CGT then there is a good chance you will have no tax to pay - unless you have other gains in the tax year which push you over the personal Capital Gains Tax limit (currently £9,200).

If it was taxable under Income Tax (which I doubt) they would probably be obliged to deduct this tax at source.

Piglet

Original Poster:

6,250 posts

256 months

Friday 18th January 2008
quotequote all
I'm hoping to use two years CGT allowance (this tax year and last tax year for two of us) to offset the gain on the (rental) property that went with the endowment originally so I guess it makes sense to hold onto the endowment until April to slip it into next year when I won't have any gains.

I hadn't thought about that I was going to press on and surrender it now but it makes sense to keep it.