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bigduckontax
bigduckontax, Accountant
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My wife and I have a Friends Life Distribution Bond in our

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Hello: My wife and I have a Friends Life Distribution Bond in our joint names purchased 30/6/1997 for £20000 (twenty units) now valued at £53000. Plan is to cash in 4 units and I wanted to know tax implications. I am a Higher Rate Tax Payer my wife is basic rate payer. Also what are implications if I spread cash in across all units or cash in total of 4 units. Are you able to advise? Regards Tom
Submitted: 10 months ago.
Category: Tax
Expert:  bigduckontax replied 10 months ago.

Hello Tom, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

This is extremely complicated and I would advise you to have a look here:

http://www.moneywise.co.uk/investing/tax-efficient-investing/will-we-pay-tax-if-we-cash-investment-bond

This will take some time. Please come back to me if you need more advice.

Here are the salient points extracted from the Moneywise article:

'If you cash in your bond, this will be treated as a chargeable event and so you need to work out whether you will have an additional income tax liability.

This is done by adding the gain you've made, including any withdrawals that have been taken, to your income for that tax year to see if it pushes you into the higher-rate, or additional-rate, income tax band.

However, this would be unfair to those who have held their bond for a long time, as they are likely to have made bigger gains, and so to determine any tax liability, the gain is divided by the number of years the bond has been held, called 'top slicing'.

You've made a gain of £37,487.75 on your bond over a period of 20 years and so the top sliced gain is £1,874.39 each year. However, as you hold the bond jointly with your wife you are deemed to own half the investment each and so you've both made a top-sliced gain of £937.19.

This amount of £937.19 is added to your income, and to your wife's income, in the tax year you cash it in and as long as this doesn't push either of you into the higher rate tax band you'll have no further income tax to pay.'

I do hope that you have found my reply of some assistance.

Customer: replied 10 months ago.
Hi : As stated in my question I am already a higher rate taxpayer and I was under the impression that I must pay 20% tax on ALL my gain and that top slicing is not applicable? Also does the tax calc allow deduction of the cumulative 5% allowance for the 19 years the bond has been operating for my half of the bond. Regards Tom
Expert:  bigduckontax replied 10 months ago.

As far as I am aware top slicing is available although, for you, as a higher rate tax payer, it doesn't alter the price of cheese as my old boss was wont to say and your additional bill will be at 20% after top slicing, assuming that the gain does not put you into additional rate levels. The advice says 'A chargeable event occurs when the bond is surrendered or part-surrendered, assigned to someone else, withdrawals in excess of 5% a year cumulative are taken, or on the death of the last remaining life assured' If you did withdraw up to the 5% annually then there would be no problem. You can deduct this allowance which will reduce your exposure considerably..

Customer: replied 10 months ago.
Hi: Sorry for delay but could you validate my calc if bond fully cashed in:
Bond cost =£20000
Bond value now: £ 52000
Gain £ 16000 each
Cumulative tax allowance 20 years at 5% = £10000 each
Gain Less allowance: £6000 each
20 %Tax Higher rate taxpayer bill: £1200.
Basic rate taxpayer bill : £ nilRegards Tom
Expert:  bigduckontax replied 10 months ago.

That seems a bit out Tom. With top slicing relief your gain subject to tax is a tad under GBP 900 so your tax at the higher rate would be of the order of 170 quid.

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Customer: replied 10 months ago.
Hi Keith Ive grasped what you said at the outset at last ,so thanks very much for your guidance which has now clarified my situation and put the matter to rest. Thank you. Regards Tom
Expert:  bigduckontax replied 10 months ago.

Delighted to have been of assistance, Yom.

Thank you for your excellent support,

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