Friends Provident With Profit Bond

Primrose

We today received the annual statement for our FP With Profits Bond which we've had for a number of years. It hasn't performed particularly well and have left it uncashed as for a while it had an MVR on it. I notice from the statement that FP say they have added an extra feature in that "you now have an option to switch all of part of the investment between "a wide range of investment funds. You don't have to take any action as your current investment is unaffected by this change."
I don't understand. Do we have this option or not? The statement also says they are not currently applying an MVR to this bond.
Is this a good time to cash it in, and can anybody provide more information about precisely what the other "range of investment funds" consist of?

dunstonh

FP's WP fund is never going to be ideal. However, they do have a good range of invesmtent funds (internal and external) and the bond pricing has been very good at various points over the years. SO, if you have the option to switch into their unit linked fund range, then it would be worth investigating.

FP can send you a funds list or you can see an IFA.

Primrose

Thank you. I was wondering whether tax is payable on these policies when they are cashed in and if so, how it is calculated. Do you pay Capital Gains Tax on everything over the annual exemption limit?

dunstonh

They are exempt from capital gains tax.

If you surrender, you have to take the gain, divide it by the complete number of years held and add that to your income. If that takes you into higher rate, then there will be a higher rate tax liability. If you are still a basic rate taxpayer then you have no further liability unless you are aged over 65 and your total income for the year exceeds £22,900.

If its joint, you can divide the gain in two.

Switching funds does not give rise to a chargeable event for tax purposes. Its not classed as a surrender. Again, another benefit of a bond compared to unit trusts.

Primrose

Thank you for such a prompt and helpful response. I think we might cash it in before the MVR gets put on again. Can you explain how the £22,900 figure is reached. Is the ceiling rate for lower rate tax less the Over 65 personal allowance?

dunstonh

The £22,900 figure is the income level set by the Govt. For every £2 over that you lose £1 of your age allowance. It is all your income; state pension ,personal pensions, interest on savings, rental income etc. It isnt linked to the lower/basic or higher rate thresholds.

There are ways to avoid this. For example, if you switch to the unit linked funds, there is no MVR possible on those. So, you can part surrender some now (enough to keep you under the limit) and do the rest in the next tax year.

Baldur

dunstonh wrote: »

The £22,900 figure is the income level set by the Govt. For every £2 over that you lose £1 of your age allowance. It is all your income; state pension ,personal pensions, interest on savings, rental income etc. It isnt linked to the lower/basic or higher rate thresholds.

Details here.

baby_boomer

dunstonh wrote: »

the bond pricing has been very good at various points over the years.

Interesting to know that FP don't properly observe the principles the WP industry proclaims to its investors.

dunstonh

For reference, I am referring to the price of the wrapper/product and/or funds. Not the with profits element. That is just one fund offered in the range.

Iconic

This company http://www.exitwith-profits.co.uk/articles.html were featured on the radio yesterday and their website is well worth a read if you are unsure about With Profit Bonds.

Friends Provident are not badly rated .....

http://www.exitwith-profits.co.uk/current-plan-assessment.html

baby_boomer

Iconic wrote: »

Friends Provident are not badly rated .....

That's a charitable assessment :rotfl:

I assume that this is because they are in the "median" group of a dire set of funds?