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Sam, Accountant
Category: Tax
Satisfied Customers: 14154
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I had a £20,000 investment bond with Aviva taken out in July

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I had a £20,000 investment bond with Aviva taken out in July 2003. A surrender value in August 2013 was 36,000 – As a higher rate tax payer am I tax liable for all of the £16,000 profit? If so is this at 20 or 40%
Hi Thanks for your response We have two issues here what should have taken place and what did. However in either of this instances EIM20400 cannot apply as the benefit continued due to the ex employers error and not because it was agreed on termination of employment (as would also seem re the 12 months that HBOS now state applies) OR it was agreed prior to employment ceasing and not paid until after said employment ceased.Then EIM15120 cannot apply And for the year that employment ceased at least a taxable benefit arises see I think the bot***** *****ne here is that there is no employment paid from that employer in excess pf £8500 a year but the fact remains that HBOS had a duty of care to ensure a continuation of benefits arising post employment should have arisen - and within that - they then made a mistake by allowing this to extend beyond the 12 months they state this was permitted to continue for.The real crux is whether this was mentioned at all in the termination agreement And loosely this legislation has to be considered which states Termination payment is made wholly or partly in kind. For example, a house or car is transferredThe employer is not required to operate PAYE on the non cash element of the payment. The employer is however, required to make a return under Regulation 91 of the PAYE Regulations of termination awards consisting solely of benefits (or cash and benefits) where the figure is estimated to exceed £30,000 and there is a tax charge under Chapter 3 of part 6 of ITEPA.These returns should be made by 6 July following the end of the tax year in which the termination takes place and sent toEmployer Technical TeamEmployer OfficeBP4102Benton Park ViewNewcastleNE98 1ZZfor electronic logging. The team will review the returns before forwarding them to the relevant risk areas in Compliance, Large Business Service (LBS) or Personal Tax International (PTI).Any case of doubt or difficulty regarding the operation of PAYE should be sent to Personal Tax Customer, Product & Process, PAYE Technical, Shipley. So the first problem is what your ex employer failed to do with their obligations but this would remain a consideration for tax and we are just trying to get this written off as the Employer made the mistakes, if HMRC do not accept Employer Error there could be a tax consequence, certainly for the first 12 months but possibly after too Thanks Sam
I am so sorry - I have no idea how it happened but you received a reply I have typed up on another question
Would you like me to proceed with the appropriate answer?
Again many apologies
Customer: replied 2 years ago.
Yes please
Customer: replied 2 years ago.
This nothing to do with employer - On my own I took an investment bond of £20,000 in 2003 and cashed in during 2013. Over the ten years I did not take a dividend. In 2013 the cash-in value was £36,000. First Am I liable for tax on the £16,000 gain and second, if so, at what rate is the tax due at 20% or 40% as I'm a higher rate tax payer.
Thank you for giving me an opportunity for you to better the rating ! Ok - these bonds can either be subjected to income tax OR capital gains and usually they are capital gains - so the tax charge is lower for capital gains (would just be 28% with come possible top slicing rleief) to establish this may I ask 1) Have you been a high rate taxpayer since 2003? 2) How long was it meant to run for -3) Did you pay in a regular monthly amount 4) Did you surrender with the company (rather than a third party broker)5) Did you get supplied with a chargeable event certificate - and does this show what tax has been retained OR6) Did you get an certificate showing amount paid less Income tax deducted.7) As this applies to 2013 - how come this is only being asked after now Thanks Sam
Customer: replied 2 years ago.
Yes been a higher tax payer since 2003 and although now retired am still higher rated
The Bond was unlimited in length
It was a one-off £20,000 payment in 2003
It was surrender with the Company
Can't remember as I have mis-laid the surrender certificate/letter from them (have asked for another) so cannot answer your question
The Indalnd REvenue sent me a letter saying I did not have to fill in a self assessment form anymore (as I was retired) but now I have received a letter asking for detail about 2013/2014 as I failed to supply the detail (I just forgot) and presumably Aviva (the investment bond company) has informed them that I received a surrender pay-out
Hi Thanks for your responses Then this arrangement could be either income tax OR capital gains (if you wish me to firm up my rpely then can you give me the full name of the investment bond product) but based on the fact this was a one off purachse - this does lean towards capital gains - and as a higher rate taxpayer for all years then there will be no top slicing relief (which looks at whether or the span of the investment was there a time that you highest rate of tax was less than the year the money is surrender so a true tax position can be awarded) So of the £16000 - then the first £10900 is tax free with the remaining £5100 liable to 28% capital gains tax £1428 But when you get the paperwork through then please do come back for me to firm up my response for you (the Question remains on "MY Questions" on your Just Answer account so we can take this up again if needed. Once again many apologies for the wrong answer being applied to your account. And if you would take the time to raise the rating it would be very much appreciated Thanks Sam Let me know if I can assist further IF - this was a investment subject to income tax - then the full £16000 would be liable to 40% tax (if this plus other income from the year was less than £150,000) so £6400 Either way you will have some interest to pay due to late payment and possible penalties - but I am sure they will accept it as not deliberate as it sounds like this ws a genuine mistake.
Sam and other Tax Specialists are ready to help you
Customer: replied 2 years ago.
Sam: A thought has occurred to me in the year in question I also had a pension from an employer which was around £50,000 gross and therefore the £16,000 surrender profit was in addition. Therefore although the first £10,900 does apply in this case it makes the total £66,000 and therefore would the whole of the £16,000 be applicable for 28% capital gains tax?
Hi Thanks for your further question This should be listed as a new question as now asking me to look at the pension - however due to the first mix up and it seems this could be your first time on Just Answer I will answer within this question payment The pension - was it the entire lump sum - or 25% of a pension pot OR the annual pension paid - or part lump sum and part annual pension - please advise furtherAlso advise any tax deducted from this payment - it should have been income tax only. Thanks Sam
Customer: replied 2 years ago.
Thank you for your extra consideration: This is an annual pension (not a lump sum) and was subject to the various income tax levels, so there was probably about £10,000 (approx) total taken out of the £50k in income tax. So I probably received around £40k plus the surrender total of £36k in that particular year
Hi Thanks for the additional information if your investment bond surrender can be treated as a capital gain then the exemption allowance of £10900 applies to the surrender bond - so deducted from £16000 leaving the ba***** *****able to tax and at 28% If however the surrender of the bond is subject to income tax - then it will be added to the annual pension - and if these two incomes were your only income then the bond surrender will be liable to just 40% tax (as is within the higher rate bracket in its own right - so as already advised would be tax due of £6400 So the figures I have given you previously - both for capital gains and income tax stand as the same Thanks Sam
Customer: replied 2 years ago.
Thank you Sam much appreciated
You are very welcome Thanks Sam