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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 invested £5000 about 25 years ago on a Distribution Bond

Resolved Question:

I invested £5000 about 25 years ago on a Distribution Bond with company now called Friends Life. The value is now just over £20000. I wish to cash it in. I pay 20% tax as I am retired. What is the tax implication if I cash in?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Expert:  TonyTax replied 1 year ago.

Have you made any cash withdrawals from the bond in the time it has been in existence?

Customer: replied 1 year ago.
No
Expert:  TonyTax replied 1 year ago.

Thanks.

Based on what you have told me, you will make a chargeable event gain of £15,000 if you cash in the bond. Assuming it is a UK based bond, the gain will be treated as basic rate tax paid. In order to work out whether you will have a higher rate tax liability you divide the gain of £15,000 by 25 (the age of the bond) and add £600 (£15,000/25) to your annual income. If the total income is no more than £43,000 in 2016/17, then you have no tax to pay. If the total income is more than £43,000 then you take 20% of the part over £43,000 and mulltiply that by 25 to arrive at your tax liability, amaximu of £3,000 (£600 @ (40% - 20%) x 25).

Take a look at HS320 for more information on UK investment bonds and how they are taxed. Offshore bond gains are not treated as basuic rate tax paid so you would have a tax liability of at least 20% of the gain. HS321 deals with offshore bonds.

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

Customer: replied 1 year ago.
Thank you. I will reflect on this and may have to get back to you, Do I have to inform HMRC if I calculate no tax is due or do I inform them anywayI
Expert:  TonyTax replied 1 year ago.

HMRC will be advised of the chargeable event gain by Friends Life. If you have no tax to pay, you need do nothing.

Customer: replied 1 year ago.
Sorry forgot to mention wife's name on bond. She is also retired and no where near her personal allowance. Does this alter things?
Expert:  TonyTax replied 1 year ago.

It makes it more likely that there will be no tax to pay.

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Customer: replied 1 year ago.
Many thanks for your help. 5 star. Regards Jim