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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am a 66 year old non tax payer, my mother has recently died

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I am a 66 year old non tax payer, my mother has recently died and had two on shore bonds from which she took a 5% income. Both bonds were held for 9 years approx. one made a gain of approx £60k and one a gain of about £30k.
Both gains include the income received. I have recently encashed both and was wondering what tax liability I Would have?
Thanks
Dominic
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Dominic, I'm Keith and happy to help you with your question. I am sorry to hear of the demise of your Mother.
Your liability to tax is probably relatively small for the following reason. The value of the bonds at your Mother's death will be taken into account in the computation of her estate for Inheritance Tax (IT) purposes. IT kicks in at 325K, but if your Father who presumably pre-deceased your Mother did not use all his 325K tax free allowance the balance is available to your Mother.
So as far as you are concerned the following applies. Presumably you inherited these bonds. In that case your acquisition cost is the probate value of the bonds. Any income from the bonds is part of your income and liable to Income Tax at your marginal rate less, of course any tax deducted at source. The gain from the net sale proceeds less the probate value is your gain for Capital Gains Tax. You have an Annual Exempt Allowance of 11K, so this can be deducted. The sum remaining is taxed at 18% or 28% or a combination of the two rates depending upon your income including the gain in the year of sale.
I do hope that I have been able to give you rather better news than you were perhaps expecting.
Customer: replied 2 years ago.
Thanks Keith the only reason I was asking was because someone told me the whole gain would be added to last years income and income tax charged accordingly
Expert:  TonyTax replied 2 years ago.

Hi. I have a different answer for your consideration.

Take a look at the HMRC helpsheet HS320 here. The narrative here and here backs up HS320.

A chargeable event gain is not subject to Capital Gains Tax when the policy is surrendered or comes to maturity or pays out on death. The only time that CGT might be payable is if a bond is sold to a third party who buys it as an investment.

If your mother was the insured and the beneficial owner of the bonds, then the chargeable event gains will be assessed on her estate for the tax year of her death as her death was the trigger event. Assuming she took out no more than 5% per annum, there will have been no previous chargeable events. In that case, the gain will be calculated by taking the value of the policies pre-death, adding the previous withdrawals and deducting from that the sum of the original investment and the previous chargeable event gains of which there appear to have been none.

The gains are then divided by the number of complete policy years they were in force and the "top-slice" added to your mother's income for the tax year of her death. There will only be an income tax liability if the top-slice of each gain takes her into the 40% tax band. The gains made from onshore bonds are treated as basic rate tax paid.

If your mother was not the insured or you were also insured under the policies and they were written in such a way as to pay out on a second death, you simply pick up the policies and their withdrawal/chargeable event history as if you had made the original investments yourself. The gains will be confirmed to you on chargeable event certificates issued by the insurance companies. The top-slices will be £6,667 (£60,000 / 9) and £3,333 (£30,000 / 9).

Unless your total income for the tax year of surrender including the top-slices is more than around £42,000, you will have no tax to pay.

You should read the notes in the third link I gave you above and take advice if you are unsure or let me know the precise circumstances as to how you came to be the beneficial owner of the bonds if that was the case as opposed to you surrendering them on behalf of your late mother's estate.

I hope this helps but let me know if you have any further questions.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
THe second opinion refers to bonds which are insurances. However, there is no indication in your question as to the nature of these bonds and if they are merely Stock Exchange traded investments as is generally the case my original response stands.

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