Is cash from surrendered endowments taxable?

dimli

Hi,

I am about to surrender my endowment but wonder if the surrender value is

a) Taxable as a total?
b) The bit over and above what I paid in (ie Profit!) is taxable
c) Only taxable if I don't use it to pay off my mortgage

Any simple advice appreciated.

Kantankrus_Mare

Ive just rung Standard Life to surrender one of my policies and there was no mention of tax which I think they would probably have mentioned if it was a possibility

Im paying mine straight off the mortgage but they didnt ask about what I was doing with the funds so I would guess that........No you wont be taxed on them but then Im not an expert.

Im sure someone in the know will come along and put us right.;)

dunstonh

It is potentially taxable if you have created a chargeable event and are a higher rate taxpayer or borderline to being one (i.e. the gain takes you into higher rate).

If you are not a higher rate taxpayer and not close to being one then you have no further liability.

dimli

Thanks for that, I am a higher rate tax payer. So if I surrender it do I have to pay tax if I use the money to pay off my mortgage. Secondly, if I see out the endowment to its end would I also pay tax on it? I don't remember tax being mentioned when I took out the endowment?

Thanks again.

dunstonh

You may have to pay some higher rate tax but there are some allowances which may allow you to avoid it.

The rules which govern qualification are: a) The premiums must be payable for ten years or 75% of the term whichever is the shorter. For example a ten year endowment plan will qualify after seven and a half years. b) The premiums must be paid regularly on an annual or more frequent basis such as monthly. c) The sum assured must be at least 75% of the total premiums payable over the life of the policy.

The usual one that helps is if the endowment has run for more than 10 years, then you shouldnt face a higher rate tax liability. e.g. If it is been running for 9 years 7 months, then you should wait another 5 months to avoid it.

Secondly, if I see out the endowment to its end would I also pay tax on it?

No further tax liaiblity would be due on maturity, regardless of your tax status.

I don't remember tax being mentioned when I took out the endowment?

It only affects higher rate taxpayers. Were you one when you took it out? Even then, there is no tax on maturity, only on surrender outside the above qualifying rules. So its not really a point that would get much info on during discussion (not back in endowment days anyway).