Taxation position on a non-qualifying policy
Discussion
Does anyone know the tax position on the surrender of a non-qualifying life assurance policy (single premium bond)?
Surrendered for £212,236.70 in December 2012 and the beneficiary (J) received 50% of the surrender proceeds.
The beneficiary is a basic rate tax payer so does the 50% of the surrender value need to be included on her tax return - the bond was taken out by J's mother, written under trust for IHT purposes for the benefit of J and her brother.
I think J should include the value on the HMR&C page 'Trusts etc' on the tax return (total payments from settlor-interested trusts'.
Surrendered for £212,236.70 in December 2012 and the beneficiary (J) received 50% of the surrender proceeds.
The beneficiary is a basic rate tax payer so does the 50% of the surrender value need to be included on her tax return - the bond was taken out by J's mother, written under trust for IHT purposes for the benefit of J and her brother.
I think J should include the value on the HMR&C page 'Trusts etc' on the tax return (total payments from settlor-interested trusts'.
What was the the term until surrendered?
Also, how much basic rate tax has the beneficiary actually used during year of surrender?
It's a chargeable gain to income tax, no CGT issues at all.
Approx £6k of gain is attributable to the beneficiary from what you've said, this if onshore, has already been taxed at basic rate of income tax. However, the top slice, divide profit by the number of years the policy is in place is added to income tax in year of surrender. If this takes you into higher rate bracket more tax to pay.
It does need to be declared irrespective of if there's tax to pay.
Also, how much basic rate tax has the beneficiary actually used during year of surrender?
It's a chargeable gain to income tax, no CGT issues at all.
Approx £6k of gain is attributable to the beneficiary from what you've said, this if onshore, has already been taxed at basic rate of income tax. However, the top slice, divide profit by the number of years the policy is in place is added to income tax in year of surrender. If this takes you into higher rate bracket more tax to pay.
It does need to be declared irrespective of if there's tax to pay.
Thanks for the replies.
It was an on shore bond, investment of £200,000 made 15/10/2004.
After a bit of reading last night, I think the liability (if any) would be a 'chargeable event' when the bond was surrendered in December 2012 and this event would apply to the bond holder rather than the beneficiary?
It was an on shore bond, investment of £200,000 made 15/10/2004.
After a bit of reading last night, I think the liability (if any) would be a 'chargeable event' when the bond was surrendered in December 2012 and this event would apply to the bond holder rather than the beneficiary?
Edited by RESSE on Thursday 31st October 09:41
Who the liability falls on depends largely upon the trust vehicle and how it was surrendered.
Usually, you would aim to have the tax fall on the beneficiary if its income tax, as is the case for a chargeable event, as the rate of tax for a trust on income is the highest personal rate at that time. I.E. last year 50% and this year 45%, as such in many cases the beneficiary would be paying a less onerous level of taxation.
Based roughly on the numbers you gave, and you would need an accountant to check this over fully, you've got £12,236.70 held over 8 full years. A chargeable gain which gives a top slice of £1,529.58.
This adds to the income of the beneficiary, if surrendered correctly, in the year of encashment. As long as it does not take them into a higher rate of tax, i.e. they are basic rate or non taxpayers, then as its onshore no further tax liability. If they are, or it does, a further 20% or 30% tax charge would be due on the gain. As an aside if the beneficiary is a non tax payer they cannot reclaim the basic rate tax already deducted at source in the bond itself.
If not surrendered properly definitely a further 30% due on the trust.
Usually, you would aim to have the tax fall on the beneficiary if its income tax, as is the case for a chargeable event, as the rate of tax for a trust on income is the highest personal rate at that time. I.E. last year 50% and this year 45%, as such in many cases the beneficiary would be paying a less onerous level of taxation.
Based roughly on the numbers you gave, and you would need an accountant to check this over fully, you've got £12,236.70 held over 8 full years. A chargeable gain which gives a top slice of £1,529.58.
This adds to the income of the beneficiary, if surrendered correctly, in the year of encashment. As long as it does not take them into a higher rate of tax, i.e. they are basic rate or non taxpayers, then as its onshore no further tax liability. If they are, or it does, a further 20% or 30% tax charge would be due on the gain. As an aside if the beneficiary is a non tax payer they cannot reclaim the basic rate tax already deducted at source in the bond itself.
If not surrendered properly definitely a further 30% due on the trust.
Edited by ellroy on Friday 1st November 08:08
Who the liability falls on depends largely upon the trust vehicle and how it was surrendered.
Usually, you would aim to have the tax fall on the beneficiary if its income tax, as is the case for a chargeable event, as the rate of tax for a trust on income is the highest personal rate at that time. I.E. last year 50% and this year 45%, as such in many cases the beneficiary would be paying a less onerous level of taxation.
Based roughly on the numbers you gave, and you would need an accountant to check this over fully, you've got £12,236.70 held over 8 full years. A chargeable gain which gives a top slice of £1,529.58.
This adds to the income of the beneficiary, if surrendered correctly, in the year of encashment. As long as it does not take them into a higher rate of tax, i.e. they are basic rate or non taxpayers, then as its onshore no further tax liability. If they are, or it does, a further 20% or 30% tax charge would be due on the gain. As an aside if the beneficiary is a non tax payer they cannot reclaim the basic rate tax already deducted at source in the bond itself.
If not surrendered properly definitely a further 30% due on the trust.
Usually, you would aim to have the tax fall on the beneficiary if its income tax, as is the case for a chargeable event, as the rate of tax for a trust on income is the highest personal rate at that time. I.E. last year 50% and this year 45%, as such in many cases the beneficiary would be paying a less onerous level of taxation.
Based roughly on the numbers you gave, and you would need an accountant to check this over fully, you've got £12,236.70 held over 8 full years. A chargeable gain which gives a top slice of £1,529.58.
This adds to the income of the beneficiary, if surrendered correctly, in the year of encashment. As long as it does not take them into a higher rate of tax, i.e. they are basic rate or non taxpayers, then as its onshore no further tax liability. If they are, or it does, a further 20% or 30% tax charge would be due on the gain. As an aside if the beneficiary is a non tax payer they cannot reclaim the basic rate tax already deducted at source in the bond itself.
If not surrendered properly definitely a further 30% due on the trust.
Edited by ellroy on Friday 1st November 08:08
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