Do I need to pay Capital Gains tax?

[The Gauge]

Before I engage with a professional can anyone suggest if any tax is due on this Canada Life Loan Trust investment of my late mothers please, and if so what type of tax - capital gains tax, income tax etc?

Last year after mum died I cashed in the Loan Trust that she had set up to try and exclude some of her estate from Inheritance Tax. Her three children were the beneficiaries and I shared the money out accordingly. However I then received this letter from Canada Life and I'm not sure if any tax is due.

I was assuming capital gains tax as it mentions chargeable gains, but it also states that tax doesn't need to be paid if I/we are basic rate tax payers (which I am), suggesting it's income tax. It also states that tax has been treated as paid???

If any tax due, is this on all the monies received as a one off payment, or it it spread across all three beneficiaries depending on their personal tax status?

[ChrisH72]

Jesus, that's clear as mud!

I'd say it's capital gains as that is generally added to your income. No idea why it suggests that basic rate tax payers don't need to pay it. If you add your share to your income would that push you into the higher rate bracket?

I think you also get a £3k CGT allowance to take off?

I'd ring that number, explain your situation and ask them if they can shed more light on it.

[Magic919]

It will be CGT. I expect you’ll divide the gain between the 3 recipients.

They seem to deduct basic rate tax from it, looking at that statement.

[ChrisH72]

Magic919 said:

It will be CGT. I expect you ll divide the gain between the 3 recipients.

They seem to deduct basic rate tax from it, looking at that statement.

Ah yes. The £8323 is 20% of the £41614.

So looks like if you are a basic rate tax payer then you're all done?

[Panamax]

I think that's probably right, some of these investment products deliver "capital gains" which are actually taxed as income.

The reporting obligation for CGT requires gains over £3,000 to be reported whether or not there's any tax payable. That's what they're telling you. You could give them a call to check.

[Sheepshanks]

There's a guide here: https://www.canadalife.co.uk/investments/guide-to-...

Seems to say the gain is treated as income. not a capital gain.

I guess recipients could be liable for more tax if the gain tips them into a higher tax bracket.

[Mr Pointy]

It can't be treated as CGT as that would be 18% or 24%: it's clearly taxed as income.

[Jon39]

Pre-death growth is not subject to CGT.
You only calculate CGT if the asset increases in value after the date of death and is subsequently sold.

Imagine having to pay CGT and also IHT.
Nobody would even bother starting a business, or invest in anything trying to achieve independence.
Return to stone age living.

I hear that Ed Milliband now wants all underfloor heating to be disconnected.
Has he got solar panels on his house yet, or using a bicycle for transport?
Probably not. "Just do as I say."

The Roman's had underfloor heating.
Would living in pre-Roman times, be any more comfortable than the Stone Age?
I don't even know how to hunt animals for food, so cannot see me being able to survive very long.

[C69]

The Gauge said:

Last year after mum died I cashed in the Loan Trust that she had set up to try and exclude some of her estate from Inheritance Tax. Her three children were the beneficiaries and I shared the money out accordingly. However I then received this letter from Canada Life and I'm not sure if any tax is due.

Not Capital Gains. Chargeable events occur on life insurance policies when certain things happen e.g. the death of the person whose life was insured.

If in doubt, contact Canada Life to clarify whether or not the tax has been treated as already paid (although the letter does make this clear).

You mention Loan Trust - was this policy held in your late mother's name, or in a trust?

Edited by C69 on Friday 3rd July 12:37

[The Leaper]

Jon39 said:

Imagine having to pay CGT and also IHT.
Nobody would even bother starting a business, or invest in anything trying to achieve independence.
Return to stone age living.

Current media speculation is that Burnham will do exactly this. Also, maybe your principal residence will be subject to CGT. So, prospect of double taxation on death at a combined rate around 65% apparently. I am watching things carefully!

R.