Reporting a capital gain to HMRC
Discussion
Do financial institutions, in particular fund/bond providers , report a potential capital gain to HMRC?
My sister in law has had a bond transferred/gifted to her by her mother, she now wants to cash in some of this to pay off mortgage. Bond provider has warned her there may be CGT to pay and said they would report to HMRC, is this correct?
If so would HMRC then contact her? Or would she have to contact them and 'declare'? She does not currently fill in a self assessment.
She is aware of the personal annual CGT allowance etc. The potential gain may be above this.
My sister in law has had a bond transferred/gifted to her by her mother, she now wants to cash in some of this to pay off mortgage. Bond provider has warned her there may be CGT to pay and said they would report to HMRC, is this correct?
If so would HMRC then contact her? Or would she have to contact them and 'declare'? She does not currently fill in a self assessment.
She is aware of the personal annual CGT allowance etc. The potential gain may be above this.
megaphone said:
Bond provider has warned her there may be CGT to pay and said they would report to HMRC, is this correct
Check out the link,https://www.gov.uk/government/publications/gains-o...
If it is an insurance based investment bond then any increase in value will not be considered a capital gain and will thus NOT be subject to Capital Gains Tax (CGT). It will instead be treated as a Chargeable Gain which is a completely different thing. If the bond is encashed (as opposed to a withdrawal from the bond being made that is within a cumulative annual withdrawal allowance) then the bond provider will indeed send a Chargeable Gain Certificate to both the bond holder and to HMRC. HMRC would then expect to see the gain declared on an income tax return (assuming HMRC can put two and two together of course which is far from certain).
You have to be more specific as to what type of bond it is.
'Bond' is a term used for many different investments from government and corporate debt to fixed rate deposit accounts and insurance based investment (or With Profits) bonds that can be onshore or offshore. This is omitting distribution bond funds.
Let us know the name and we can be more helpful.
I am guessing it is an insurance company bond wrapper (though I may be wrong) and therefore top slicing will determine the tax (ig any) payable.
At a very simple level you divide any gains (minus original capital) by the number of years the bond was held for.
You then take this figure (so a £100k gain over 20 years would 'top slice' as £5k) and add it to your taxable earnings in that year.
This determines the tax you will pay. So if, in this example, the gain does not put you in a higher rate tax band then you have no higher rate tax to pay.
Someone please correct me if I am out of date on this!
Edited for clarity
'Bond' is a term used for many different investments from government and corporate debt to fixed rate deposit accounts and insurance based investment (or With Profits) bonds that can be onshore or offshore. This is omitting distribution bond funds.
Let us know the name and we can be more helpful.
I am guessing it is an insurance company bond wrapper (though I may be wrong) and therefore top slicing will determine the tax (ig any) payable.
At a very simple level you divide any gains (minus original capital) by the number of years the bond was held for.
You then take this figure (so a £100k gain over 20 years would 'top slice' as £5k) and add it to your taxable earnings in that year.
This determines the tax you will pay. So if, in this example, the gain does not put you in a higher rate tax band then you have no higher rate tax to pay.
Someone please correct me if I am out of date on this!
Edited for clarity
Edited by JulianPH on Sunday 10th June 10:47
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