Chargable Event
Discussion
I wonder if anybody can advise on this? My mother died a couple on months ago, my brother inherited the house and I will inherit the remainder of the estate. I've had a letter from Aviva advising that an investment bond which they have forwarded to money to me had increased in value (hence the chargeable event) over the last 13 years. My mother had paid tax at 20% on this but as a "additional rate" tax payer will I be liable to an additional tax liability of 45% - 20% (paid by my Mother) = 25%?
Alan
Alan
Alan, if your late mother was the sole.life assured and hence the bond came to an end on her death then it will be taxed at her rate. You would need to know your mothers income for her final year assuming she was a 20% taxpayer and add the top.sliced gain (total gain, adding back in withdrawals/ number of years held) to her income.to.test whether this pushes her to the higher rate of income tax. Hope that brief guide helps.
Presumably the personal representatives encashed the Bond with a view to paying the surrender proceeds to the beneficiary(ies) entitled to the Bond (or the proceeds of the Bond) under the deceased owner's Will or under the intestacy rules.
If at the time of surrender of the Bond the administration of the estate has not yet been completed (the solicitors dealing with the estate will confirm or otherwise) the personal representatives hold the rights in the Bond.
On encashment of an offshore Bond by the personal representatives a chargeable event would occur. Any gain would be subject to a 20% income tax charge on the personal representatives. This is because the gain is treated as income of the personal representatives and is taxed at the basic rate only.
On distribution of the proceeds to the beneficiary(ies), the chargeable event gain would be treated as estate income in the hands of the beneficiary. Where the proceeds are split between beneficiaries an appropriate part of the gain would be attributed to each beneficiary. The gain is treated as estate income of the beneficiary on the basis that the income of personal representatives forms part of the aggregate income of the estate. This means that the personal representatives would be required to provide a copy of form R185 (Estate Income) to the beneficiary which sets out details of any income tax paid by them in respect of the chargeable event gain.
From this it follows that the chargeable event gain will be taxed at 40% if the beneficiary is a higher rate taxpayer and/or 45% if the beneficiary is an additional rate taxpayer. HMRC will allow the beneficiary a 20% tax credit for the tax suffered by the personal representatives. As the gain is treated as estate income, top-slicing relief would not be available.
The position in respect of a UK onshore bond is as stated above, with the difference that there is no tax liability for the personal representatives. HMRC will allow the beneficiary a 20% tax credit for the tax suffered in the life fund underlying the Bond.
Hope this helps.
If at the time of surrender of the Bond the administration of the estate has not yet been completed (the solicitors dealing with the estate will confirm or otherwise) the personal representatives hold the rights in the Bond.
On encashment of an offshore Bond by the personal representatives a chargeable event would occur. Any gain would be subject to a 20% income tax charge on the personal representatives. This is because the gain is treated as income of the personal representatives and is taxed at the basic rate only.
On distribution of the proceeds to the beneficiary(ies), the chargeable event gain would be treated as estate income in the hands of the beneficiary. Where the proceeds are split between beneficiaries an appropriate part of the gain would be attributed to each beneficiary. The gain is treated as estate income of the beneficiary on the basis that the income of personal representatives forms part of the aggregate income of the estate. This means that the personal representatives would be required to provide a copy of form R185 (Estate Income) to the beneficiary which sets out details of any income tax paid by them in respect of the chargeable event gain.
From this it follows that the chargeable event gain will be taxed at 40% if the beneficiary is a higher rate taxpayer and/or 45% if the beneficiary is an additional rate taxpayer. HMRC will allow the beneficiary a 20% tax credit for the tax suffered by the personal representatives. As the gain is treated as estate income, top-slicing relief would not be available.
The position in respect of a UK onshore bond is as stated above, with the difference that there is no tax liability for the personal representatives. HMRC will allow the beneficiary a 20% tax credit for the tax suffered in the life fund underlying the Bond.
Hope this helps.
Gassing Station | Finance | Top of Page | What's New | My Stuff