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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have received a letter from Prudential saying I have been

Resolved Question:

I have received a letter from Prudential saying I have been taking 5% withdrawal for 20 years and this will now become a chargeable event.

Should I stop taking the 5%, or accept that I will probably pay 20% on the amount taken.

I do not have any age related allowances other than a slightly higher personal allowance, or tax credits.

I have a pension, state pension and savings interest
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

As your policy has reached 20 years and you have been taking out 5% of the original investment each year, you have effectively withdrawn all your original investment so what remains is all profit.

Each withdrawal you make in a policy year from now on is a chargeable event but, assuming it is a UK policy as opposed to an offshore one, the gain will be treated as having had basic rate tax deducted. So, as long as you are a basic rate taxpayer and the gain does not take you into the 40% tax band, you will have no further tax to pay.

There is some useful information on chargeable event gains and tax here.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.

Thanks for that - I understand it a bit more now and will read the useful information.


 


I am still a 20% tax payer. This Prudence Bond was bought with a single premium of £25,000 in August 2001 by my late husband and myself. On his death I kept the Bond which is whole life with a final payment payable.


 


I hadn't realised that it was treated as if basic tax had been deducted.


 


Ann

Expert:  TonyTax replied 3 years ago.
To be sure that your policy is a UK policy, you should call Prudential and ask them to confim it. A gain made on an offshore policy is deemed to have suffered no UK tax but as you have only ever drawn 5% per annum, you have never been issued with a chargeable event certificate. Such a certificate would show the gain and the basic rate tax if it is a UK policy.

One thing you need to remember is that any chargeable event gain counts as income for age allowance purposes.
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