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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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what are the implications with regard to selling my prudential

Resolved Question:

what are the implications with regard to selling my prudential investment bond held in Dublin. re. Tax. value is £8,873.66 Held since 2000.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you tell me what the value of the original investment was and when you made it please. Is the bond an onshore (UK) or an offshore bond? When you say you "sell", do you mean you are considering selling the policy to a thrird party or surrendering it to Prudential?
Customer: replied 2 years ago.

original investment was £12,000 the bond is offshore in Dublin

I may need to cash in the bond to help my daughter. it was taken out in

Nov. 2000 sorry for delay but lost the page

Expert:  TonyTax replied 2 years ago.

Thanks.

Have you made any withdrawals since you took out the bond?

Customer: replied 2 years ago.

no withdrawals only the allotted interest tax free I think it is 5%

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Customer: replied 2 years ago.

I have replied . no withdrawals but had interest payments at 5% which should be tax free.

Expert:  TonyTax replied 2 years ago.
I know you have replied. I'm drafting my answer right now. It will take a while.
Customer: replied 2 years ago.

why is your computer time showing 09.55 where are you?

Expert:  TonyTax replied 2 years ago.
I'm in the UK. Its just after 2pm. The just answer website is based in the USA.
Expert:  TonyTax replied 2 years ago.

I'm back.

You should look at HS320 and HS321 which deal with the tax implications of UK (onshore) bonds and offshore bonds respectively.

In order to work out the gain you need to take the surrender proceeds and add back the sum of all the 5% withdrawals and deduct the original investment of £12,000 and any previous chargeable event gains of which you say there were none as you have never taken more than 5% out of the bond in any one policy year. So, the gain will be £5,274 (£8,874 + £8,400 - £12,000). See page 18 of HS321.

You may be entitled to top-slicing relief which aims to mitigate the effect of a higher rate tax charge on an individual who is not normally a higher rate taxpayer. Assuming the bond is an offshore bond, there will be no basic rate tax credit as there is with UK bonds so you will have a minimum of 20% tax to pay on the £5,274 gain , ie £1,054.80.

If you divide the £5,274 gain by the number of completed policy years (14), you get a top-slice of £376. If when you add the top-slice to your income for 2014/15 assuming you surrender it in the current tax year, then that part of the top-slice which takes your income over £41,865 will be taxable at 40%. You would then multiply the tax on the part of the gain taxable at 40% by 14 and add the result to the amount of the gain taxable at 20%.

If you are a 40% taxpayer regardless of the gain, you will pay tax at 40% on all of the gain if your income is no more than £150,000 or at 45% if your income is over £150,000.

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

Customer: replied 2 years ago.

thank you for your work but it is too much for me to take in. I shall get the forms you mentioned

Expert:  TonyTax replied 2 years ago.
The gain is simply the difference between what you get out and what you invested.

If you call Prudential, they will tell you whether the bond is offshore (no tax credit) or onshore (20% tax credit) and they should be able to tell you what the gain will be.

If you tell me what your income level will be for 2014/15, I'll tell you how much tax you will pay on the gain.
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