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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 recently surrendered a life insurance policy and have been

Resolved Question:

I recently surrendered a life insurance policy and have been sent a chargeable event amounting to £152,000 are there tax implications if so what will they be and what will I need to do next. I only have a state pension and therefore I am relying on this money as a backup. The policy was with Friends Provident on the Isle of Man, duration 12 years. My wife and I are both 72 I don't know if this will have any relevance.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you tell me if you made any cash withdrawals over the life of the polciy before the final surrender? Is the gain £152,000? Does the chargeable event certificate say that the number of relevant years is 12? Does it say that no tax has been treated as paid on the gain? How much are your state pensions?
Customer: replied 2 years ago.

This the script

1 Surrender value at date of event £229,918.51

2 Total withdrawals (prior to this event) £143,701.94

3 Total premiums paid £ 205,000.00

4 Total previous chargeable amounts: £15,701.94

5 Current chargeable amounts ([1+2]-{3+4] )

=£152,918.51

6 Number of completed years since commencement

12 years

7 Treat as having paid income tax at basic rate.

There were 10 policies commencement date 05/07/2000

There are 2 policy holders Mr John E Hughes

Mrs Mary.E.Hughes

Nature of Event Full Surrender

Expert:  TonyTax replied 2 years ago.
Thanks. That's very helpful. However, I have a couple of further queries.

1 There appear to have been previous chargeable events (4). Does the certificate give a number of years since the previous chargeable event? It may be labeled "Number of relevant years".

2 Note 7 says "Treat as having paid income tax at basic rate". This isn't usually the case with offshore insurance bonds. Does the certificate give a figure for basic rate tax paid? If so, what is it?
Customer: replied 2 years ago.

Sorry Tony, the policy certificate says No with respect to Tax having been paid at the basic rate.

The only indication I can confirm is the other chargeable events were in 2011 and 2012 no more chargeable events occurred until the final surrender was finalized on 29/05/2013. The final Chargeable Events Certificate was issued 04/02/2015. Hope this is helpful.

Expert:  TonyTax replied 2 years ago.

Thanks.

You say the policy started on 2000 and ran for twelve years. Do you mean 15? When exactly (the date) did the other two chargeable events occur?

Customer: replied 2 years ago.

The policy's started in March 2000and was originally with Royal and Sunaliance international Financial Services in the Isle of Man and was acquisitioned by Friends Provident 28th June 2001and has run for 12years the main reason for the surrender was the uncertainty in the wind up of the funds. The nearest date I can give for the two events were Dec 2005 and September 2008.Withdrawals were suspended in 2009 cant find the exact date.

Expert:  TonyTax replied 2 years ago.

Thanks.

Leave this with me while I draft my answer. It will take a while.

Expert:  TonyTax replied 2 years ago.

Hi again.

There is information on offshore investment bonds here.

You made a final gain of £152,918 on the surrender of the offshore Friends Provident policy. Assuming both you and your wife were the joint beneficial owners, you each have a gain of £76,459. As this was an offshore policy, no basic rate tax has been treated as paid.

As the gain accrued over 12 or 15 years, you are entitled to top-slicing relief which is based on the number of complete years the policy ran for (12 or 15) so as to limit any 40% tax liability which is due to a one off event. You should contact Friends Provident to find out whether you should use 12 or 15 years for top-slicing relief purposes. I would say 12 as that is what you said was on the certificate.

If the gain for each of you is divided by 12, the top-slice is £6,372. Tax at 20% on that is £1,274.40. Multiply that by 12 and your maximum tax liability is £15,292.80.

If the gain for each of you is divided by 15, the top-slice is £5,097. Tax at 20% on that is £1,019.40. Multiply that by 15 and your maximum tax liability is £15,291.

Either way it makes little difference to the tax liability. If you have unused personal allowances, these can be offset against the sum of your regular income and the chargeable event gain which is £76,459 for each of you and should reduce the tax liability.

The life company will report the gain to HMRC. You and your wife, however, still need to report your respective gains. After the end of the tax year, you should contact the tax office on the number here and ask if you and your wife will need to register for self-assessment or whether HMRC can assess the tax you will need to pay outside of the self-assessment system.

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

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