Please can you comment on the accuracy of the following, which is in relation to a bond which is part of my wife's late father's estate: Currently, the plan is effectively owned by XXX’s personal representatives (PR or Executors). Probate can be issued, with the understanding that the bond will be either encashed or assigned (see below) to the beneficiaries of the Will in line with XXX’s wishes. Nothing can be done on the bond, as far as I am aware, until Probate is issued.
Once Probate is issued, and presented to Friends Life the Personal Representatives have two options. The first is to simply encash the contract and distribute the money out to the Beneficiaries in line with the will. There would be no tax liability levied on the PRs, but the beneficiaries could have a tax liability if they are Higher Rate Tax payers, or their percentage of the gain added to their income pushes them into High Rate Tax. If they are Zero, or Basic Rate Tax payers there is no further liability to tax. A 20% tax charge would be levied on anyone over the High Rate threshold. Alternatively, the PRs can opt to assign the ownership of the bond to the beneficiaries proportionally and then they can either leave the investment in place or encash it themselves. If they are Higher Rate Tax payers, this route could potentially be beneficial as they can use “top slicing” which could reduce the amount of tax they are liable too
Hi Keith, just checking you read the full quote after I edited it.
The quote (from a 'Financial Adviser', not accountant) seems to imply that if the bond was sold immediately then there could be an immediate higher rate tax charge. You seem to be saying the opposite - "there would be no gain for CGT purposes"?
What I am trying to understand is the tax position for the beneficiaries - there are 8 just to make it complicated! What has been said is that all 8 can make an individual decision as to whether bond is encashed on their behalf or their share of the bond is assigned to them. The 'logic' is that if it is encashed then this could create a chargeable higher rate tax event. I don't really understand why. Surely any gain has already happened when the bond passed into the estate?
How would the income tax deductions be calculated if it was done by the PRs? Presumably there couldn't be any higher rate tax...?
So looked at that way, there would seem to be no good reason for the PRs not to encash the bond, because if they pass on a share, then the beneficiaries might one day get a higher rate tax charge that could have been avoided.
OK, thanks Keith.