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  • FIRST POST
    • confusedfinance
    • By confusedfinance 14th Jun 17, 10:35 PM
    • 3Posts
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    confusedfinance
    Help with Pru endowment investment bond please
    • #1
    • 14th Jun 17, 10:35 PM
    Help with Pru endowment investment bond please 14th Jun 17 at 10:35 PM
    Hi
    We have been saving £40 a month jointly for the kids' education for 18 years in a Pru new world endowment investment bond and now need to cash it in for University fees.
    We had been told it was just like our endowment mortgage at the time so tax free but now on reading our recent statement it says income tax may be due.
    We are confused as the only info we can find online is about single investment bonds, whereas ours is a monthly, no time limit endowment.
    Can anyone here help clarify if tax needs to be paid?
    Thanks for the help!
Page 1
    • dunstonh
    • By dunstonh 14th Jun 17, 10:40 PM
    • 88,789 Posts
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    dunstonh
    • #2
    • 14th Jun 17, 10:40 PM
    • #2
    • 14th Jun 17, 10:40 PM
    We had been told it was just like our endowment mortgage at the time so tax free but now on reading our recent statement it says income tax may be due.
    These have never been tax free. They are treated as basic rate tax paid at source.

    If yours is an endowment (i.e. fixed maturity date) and its a qualifying plan and has qualified (such as maturity, more than 10 years or two thirds into term) then there is no further tax to pay.

    If yours is not an endowment but open ended then there may be higher rate tax to pay if the gain takes you into the higher rate band.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • antrobus
    • By antrobus 14th Jun 17, 11:00 PM
    • 15,033 Posts
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    antrobus
    • #3
    • 14th Jun 17, 11:00 PM
    • #3
    • 14th Jun 17, 11:00 PM
    Hi
    We have been saving £40 a month jointly for the kids' education for 18 years in a Pru new world endowment investment bond and now need to cash it in for University fees.
    We had been told it was just like our endowment mortgage at the time so tax free but now on reading our recent statement it says income tax may be due.
    We are confused as the only info we can find online is about single investment bonds, whereas ours is a monthly, no time limit endowment.
    Can anyone here help clarify if tax needs to be paid?
    Thanks for the help!
    Originally posted by confusedfinance
    The distinction is between qualifying policies (normally no extra tax payable) and non qualifying policies (additional tax might be due).
    https://www.gov.uk/government/publications/gains-on-uk-life-insurance-policies-hs320-self-assessment-helpsheet/hs320-gains-on-uk-life-insurance-policies-2016

    The Prudential should really know the difference. Presumbaly they have people who have read the Insurance Policyholder Taxation Manual.
    https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual

    But as far as I'm aware, even if it was a non-qualifying policy, there is no basic rate tax due. There might be some higher rate tax due, subject to top slicing relief. Which is complicated.
    • confusedfinance
    • By confusedfinance 15th Jun 17, 2:08 PM
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    confusedfinance
    • #4
    • 15th Jun 17, 2:08 PM
    • #4
    • 15th Jun 17, 2:08 PM
    Thanks for the replies. This is not what we thought it was at all when we signed up to this. If we had realised any tax was due never mind higher rate which we will now have to pay we never would have signed up to it as it was always intended to get our son through University. We would have done something else or something in his name. All very complicated. Feel conned.
    • dunstonh
    • By dunstonh 15th Jun 17, 2:22 PM
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    dunstonh
    • #5
    • 15th Jun 17, 2:22 PM
    • #5
    • 15th Jun 17, 2:22 PM
    If we had realised any tax was due never mind higher rate which we will now have to pay we never would have signed up to it as it was always intended to get our son through University
    If it was 18 years ago, then that is 1999. These plans were already at that point as S&S ISAs came in. Most of the old home sales forces were pulling out of them at that point. Apart from child ones in trust - as trusts needed to be with life based plans. Also, many ISAs had a minimum premium of £50pm back then with the salesforces. IFAs could get lower at £20pm but if you used a Pru sales rep, then it would have been £50. So, a premium requirement of £40 would have fitted the objective.

    We would have done something else or something in his name.
    He is too young to have entered into a contract. You could have done something else if you hadnt used a Pru sales rep. They were limited to their product range.

    Feel conned.
    Not seeing anything that suggests you have been conned. Yes, there were better options but not from Pru at that time and the return you have had has probably been pretty good.

    Higher rate tax would only apply if the plan has not qualified. Your timescale suggests it has.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • macca1974
    • By macca1974 15th Jun 17, 2:41 PM
    • 212 Posts
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    macca1974
    • #6
    • 15th Jun 17, 2:41 PM
    • #6
    • 15th Jun 17, 2:41 PM
    You might be able to assign ownership of the policy directly to your son if he is now over 18. If he isn't a tax payer then there may not be any tax to pay. Worth talking to the Pru about the possibility of this (although of course it would then legally belong to your son and he could spend it on whatever he wanted).
    • dunstonh
    • By dunstonh 15th Jun 17, 2:59 PM
    • 88,789 Posts
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    dunstonh
    • #7
    • 15th Jun 17, 2:59 PM
    • #7
    • 15th Jun 17, 2:59 PM
    You might be able to assign ownership of the policy directly to your son if he is now over 18. If he isn't a tax payer then there may not be any tax to pay. Worth talking to the Pru about the possibility of this (although of course it would then legally belong to your son and he could spend it on whatever he wanted).
    Originally posted by macca1974
    If the plan has qualified (which is likely) then there is no tax to pay regardless of the tax status of the policyowner.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • confusedfinance
    • By confusedfinance 15th Jun 17, 10:10 PM
    • 3 Posts
    • 0 Thanks
    confusedfinance
    • #8
    • 15th Jun 17, 10:10 PM
    • #8
    • 15th Jun 17, 10:10 PM
    Hi
    Thanks for your patience and replies.
    I really don't understand this. What are IFAs?
    From what I have been trying to read on this open ended endowments are non-qualifying. I called pru and they say we will have to pay tax on gains.
    I will look into whether we can assign it to my son who is not earning as a student about to start Uni.
    He did A level maths so I have asked him to calculate earnings- only 2.35% on average so not a great investment at all.
    If we had been told there was tax to be paid on this we would not have gone for it.
    • dunstonh
    • By dunstonh 15th Jun 17, 11:38 PM
    • 88,789 Posts
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    dunstonh
    • #9
    • 15th Jun 17, 11:38 PM
    • #9
    • 15th Jun 17, 11:38 PM
    From what I have been trying to read on this open ended endowments are non-qualifying.
    Correct.

    only 2.35% on average so not a great investment at all.
    That is very low for Pru. They are normally better than that.

    If we had been told there was tax to be paid on this we would not have gone for it.
    By 1999, it was on the product illustration.

    I really don't understand this. What are IFAs?
    #Independent financial advisers. Compared to FA. Which can only do their own product or have a restricted product range. This product may have been bought direct as well.
    Last edited by dunstonh; 15-06-2017 at 11:43 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Malthusian
    • By Malthusian 16th Jun 17, 9:51 AM
    • 2,596 Posts
    • 3,701 Thanks
    Malthusian
    No need to worry about tax before you have worked out whether you need to pay any. Unless one if you is a higher rate taxpayer or very close to the threshold, or performance was absolutely stellar (doesn't sound like it), there may be no tax to pay. (Even if there is, you can assign the bond as already discussed.)

    What is it worth now and what is your annual income?

    People with much more experience and qualifications than your son manage to screw up compound growth calculations, so no harm in letting us check his figures. If your son has taken the £8,640 total you put into the bond and worked out (Value / 8640) ^ (1/18) then he's incorrect, as that would be the growth rate if you'd put in £8,640 as a lump sum 18 years ago. 18 years ago you only had £40 invested, 17 years ago you only had £480 invested, so the actual growth rate is much higher. I obviously have no idea if that's his calculation, but that is the first explanation that springs to mind for the discrepancy between what myself and DunstonH know about Prudential's general performance, and the very low figure your son has come up with.
    • mark5
    • By mark5 16th Jun 17, 5:52 PM
    • 1,151 Posts
    • 773 Thanks
    mark5
    I'm shocked at that return, most of my family bought various Pru products in the 80's and 90's, i always remember as a kid the local agent calling with his big heavy book and collecting the money, he usually stayed for a coffee and a chat, we must have had the same bloke calling for about 15-20 years.
    Every pension, endownment, savings plan my dad bought with them seemed to really pay off and give good returns.
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