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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I took out a 'with profits' policy with Aviva just over six

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I took out a 'with profits' policy with Aviva just over six years ago, when I retired. It is now at a point where I wish to 'cash it in'. It is worth approx £72k which means it has delivered a profit of around £22k. I am fortunate that my pension is a good one but it means that I am a higher rate tax payer. I have been told this will mean I will have tax levied on the profit I have made. My wife has no job or pension and as such is not a tax payer with her annual tax allowance not being utilised. I believe that if I complete a deed of transfer, I can move the policy from my name to my wife's and subsequently, if she 'cashed in' the policy, we would not be liable for tax on the value secured. Can you confirm this is the case or whether there is any sort of tax implication of giving my wife this 'gift'. Thanks in advance.

So long as no money changes hands when you assign the policy to your wife, there will be no tax implications for you and no immediate tax implications for your wife. She will pick up the policy as if it had been hers from the date it was originally taken out.

Any future chargeable event gains from partial encashment or full encashment will belong to your wife and she may have tax to pay if she is a higher rate taxpayer or the top-slice of any gain takes her into the 40% tax bracket or the policy is an offshore policy in which case she may have a 20% tax liability on that part of any gain in excess of her personal allowance (assuming she has no other income).

Take a look here for information on tax and single premium investment bonds.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Can you please clarify one point. - First let me confirm that this is not an offshore policy.

OK,I confirm that my wife has no taxable income at all, so are you saying that once the deed of transfer to her is complete she could decide on full encashment (£72k....made up of initial investment of £50k plus interest of £22k) without paying any tax OR are you saying that she would have to pay tax 20% tax on the profit between her tax allowance and the £22k profit. Sorry that I have not properly understood your response. Regards.

If there is a chargeable event gain of £22,000 and the policy is a UK policy there will be no tax to pay as the gain will be treated as having suffered tax at 20% and, since your wife has no income, she will obviously not be liable to tax at 40%.

Assuming there have been no previous encashments, the top-slice of the gain will be £3,667 (£22,000 - 6 complete policy years). It would be the top-slice that would be added to your wife's income to determine whether she would be liable to 40% tax which is clearly not the case.

Offshore policy gains are deemed to have suffered no tax at source, hence the possibility of a 20% tax charge.
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