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    • darren72
    • By darren72 17th Jun 17, 3:22 PM
    • 950Posts
    • 172Thanks
    darren72
    Tax Implications of cashing out Life Assurance Policy
    • #1
    • 17th Jun 17, 3:22 PM
    Tax Implications of cashing out Life Assurance Policy 17th Jun 17 at 3:22 PM
    An elderly family member is currently in a care home and had run out of savings to pay for their care. They have therefore had to cash in their Prudential Life Assurance Policy (Called Flexible Investment Plan).

    They originally invested £57,000 into the plan in September 2009 and have now received their funds valued at £82,000 - which has now been transferred to their account.

    Today they received a 'Chargeable Event Certificate' and we are not entirely certain what we must do. Does this mean they need to pay Capital Gains Tax or Income Tax - as the document also refers to 'Notional Tax'.

    Does anyone know of have any experience of this ?

    The certificate shows:

    Nature of chargeable event: Full Surrender
    Cash In Value of Policy: £82,000
    Amount of gain arising on this event: £25,000
    Number of complete relevant years: 7
    Notional Tax: £5,000

    It mentions disclosing to HMRC as 'Life Insurance Gains'.

    Thanks in advance
Page 1
    • dunstonh
    • By dunstonh 17th Jun 17, 5:00 PM
    • 88,102 Posts
    • 53,337 Thanks
    dunstonh
    • #2
    • 17th Jun 17, 5:00 PM
    • #2
    • 17th Jun 17, 5:00 PM
    They have therefore had to cash in their Prudential Life Assurance Policy (Called Flexible Investment Plan).
    It should be noted that these are exempt from the means test. So, do not need to be declared, or if they are, they should be disregarded.

    However, once cashed in, they do get included in the means test.

    Today they received a 'Chargeable Event Certificate' and we are not entirely certain what we must do. Does this mean they need to pay Capital Gains Tax or Income Tax - as the document also refers to 'Notional Tax'.
    Ita a figure that goes on the tax return. There is no further liability for tax for a basic rate taxpayer as long as the gain, after top slicing relief, keeps them in the basic rate band. If they enter the higher rate band then an additional 20% tax will be payable on the amount within the higher rate band.

    After top slicing relief, the gain to be added to income in this tax year is £3571. So, add that to the income and as long as its still basic rate band, then no further tax to pay.
    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.
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