Hi.Assuming that you are UK resident, that no money changed hands when the policy was assigned, that you are the sole beneficiary and that you have been UK resident since the policy commenced, the chargeable event gain on a full surrender will be calculated by taking the surrender proceeds, adding the sum total of all previous withdrawals, deducting the sum total of all premiums paid and adding the previous chargeable event gains.No top-slicing relief is due if you remain a basic rate taxpayer after adding the full gain to your other income and deducting your personal allowance which is £10,000 for 2014/15 assuming you are under 65 for the whole tax year. You will be entitled to top-slicing relief if the gain exceeds the sum of the basic rate tax band and your personal allowance. For offshore bonds, top-slicing relief is calculated differently to that for UK bonds. For offshore bonds, you divide the chargeable event gain by the number of complete policy years that have elapsed since the policy was taken out to arrive at the top-slice.If you have no other income in the tax year of surrender, let's say 2014/15, and the total gain is £41,865 or less, you deduct your personal allowance of £10,000 to arrive at the taxable gain. You will pay income tax at 10% on the first £2,880 of the gain and at 20% on the balance.
If you do have other income in the tax year of surrender, then you will pay more tax on the gain even if it is at 20% as not all and possibly none of your personal allowance will be available to be used against the gain.If the gain is more than £41,865, then top-slicing relief comes into play. It would probably be easier if you give me all the details mentioned in the highlighted section of the second paragraph above so that I can do the calculations unless you wish to do them yourself.I hope this helps but let me know if you have any further questions.
The bond was created 29/5/96 £100,00 as a single premium was invested.
A total of £4920.3 was paid in Trust fees spread out annually from 30/1/97 to 2008.
£5,000 was w/drawn in Nov 2008,
£67,844.65 in Oct 2011 and
£9735.05 in Jan 2014
The Bond was worth £77,760.73 on 20/3/14
I was given the Bond 28/2/14. I am the sole owner and no money has changed hands between the owner and myself.
I have been resident and a tax payer overseas from the date the Bond started to 4/7/98 and from 24/1/10 to 31/3/14 over that 17 year period.
Please advise as to the the amount of tax liable if I withdraw the whole sum this tax year (I will be earning less than £5,000 with no other income.)
Also if possible what are my options for withdrawal to minimise tax payments. I appreciate another fee may be payable.
Thanks Tony, The bond was created 29/5/96 £100,00 as a single premium was invested. A total of £4920.3 was paid in Trust fees spread out annually from 30/1/97 to 2008.£5,000 was w/drawn in Nov 2008,£67,844.65 in Oct 2011 and£9735.05 in Jan 2014 The Bond was worth £77,760.73 on 20/3/14 I was given the Bond 28/2/14 as sole owner without any exchange of monies. I have been resident and a tax payer overseas from the date the Bond started to 4/7/98 and from 24/1/10 to 31/3/14 over that 17 year period. Please advise as to the the amount of tax liable if I withdraw the whole sum this tax year (I will be earning less than £5,000 with no other income.) Also if possible what are my options for withdrawal to minimise tax payments. I appreciate another fee may be payable. Thank you.
Can you explain the trust fees please. You said the bond was given to you by a family member, not a trust. Please clarify. Are you resident in the UK now?
I believe the bond was part of a Trust account and was taken out by family members to give to me. The Bond being held within the Isle of Mann where it is now.
I am now resident in the UK
Without knowing the details of the trust, all I can do is base my figures on the fact that the gift to you of the bond was by "a family member".If you surrender the bond today for £77,761, there will be a chargeable event gain of £60,341 (£77,761 + £82,580 - £100,000). As you appear to have been non-UK resident for part of the period covered by the life of the bond, that proportion of the gain will be exempt from UK tax. The life of the bond to 12 April 2014 has been 6,528 days of which you were non-UK resident for 2,295 so 35.16% of the gain (£21,216) will be tax free leaving 64.84% (£39,125) taxable.Since you have an income of just £5,000, none of the top-slice of the gain will take you into the 40% tax band so in effect, the part of the gain not covered by the unused part your personal allowance of £10,000, £34,125 will be charged at 10% on the first £2,880 (£288.00) and at 20% on the balance of £31,245 (£6,249.00). The tax payable will, therefore, be £6,537.00.Ultimately, you will pay tax on the overall gain less the part not taxable because you were non-UK resident. You could take out the balance of the unused 5% allowances up to the twentieth anniversary of the policy but each withdrawal after that will be taxable in full as a chargeable event gain subject to unused personal allowances of course. Those gains will be taken account of in the final analysis when the bond is finally surrendered.The only way to avoid UK tax completely is to be non-UK resident when the bond is surrendered. However, you would need to check the tax situation in the country that you moved to.
Thanks Tony for doing the complicated maths.
What would the tax payable if I used the remaining allowances and included my allowance overseas exemption when the policy matures in 2017?