Tax on a With Profits Investment

simonjevans

I have a 20 year monthly direct debit (of £100) 'with profits' investment policy maturing in 3 weeks at around £40k. I took this policy out when I was 19 and a basic rate tax payer, but I am now a higher rate tax payer. The maturity paperwork suggests that as a higher rate tax payer I may have a tax bill to pay on the maturity payout.

Can anybody advise how the tax due would be calculated? and are there any tax planning options, open to me, that might prevent this tax charge from ocurring?

Many Thanks.

missile

You might want to read my post https://forums.moneysavingexpert.com/discussion/2718917
and check the link re top slicing

BoGoF

A chargeable event usually only occurs when the policy is surrendered early. If the policy has fully matured there should be no tax implications.

meggsy

We have a chargeable event as well having cashed in a WP bond, it had no maturity date, but we understand that tax has already been paid every year and the event only applies to this current tax year.

There are some handy calculators here which I used ..

http://www.candidmoney.com/intro/calculators.aspx

dunstonh

Dont mix up single premium plans with regular contribution plans.

If the plan is open ended then tax may be an issue. If the plan has a maturity date then it could be a qualifying plan which will have no further tax liability on maturity.

So, the question to the OP is to find out if the plan is a qualifying life policy or a non-qualifying policy.

simonjevans

Thanks dunstonh,

I have asked the company to confirm whether it is a Qualifying plan or not and if not to give me their reasons why. I have also asked if they intend on issuing a chargeable event certificate.

If it turns out to be a Non-Qualifying plan and lets say I get hit for a chargeable gain of £16k (£40k maturity value less £24k sum of regular contributions) can I avoid paying the additional tax by using the top slicing calculation and making a contribution to my personal pension plan so that I am reduced for this year only to being a basic rate tax payer, i.e.

Taxable Earning from Employment (after occupational pension contributions, allowable expenses and Personal Allowance) £41,400
Gross Contributions to FSAVC Scheme (£4,800)
Total Taxable Earning for Current Year £36,600

Sliced Gain on Policy [£16k divided by 20 years] £800

Total Income for Current Year £37,400

As the threshold for basic rate tax is £37,400 - All of the above falls into the 20% band. My interpretation of this is that under the Top-Slicing relief calculation I won't have to pay any additional tax. Is my understanding correct?

Many Thanks.

jem16

simonjevans wrote: »

Total Income for Current Year £37,400

As the threshold for basic rate tax is £37,400 - All of the above falls into the 20% band. My interpretation of this is that under the Top-Slicing relief calculation I won't have to pay any additional tax. Is my understanding correct?

Many Thanks.

Threshold is £37,400 but that's taxable income. Add on the personal allowance of £6475 making it £43,875 before any higher rate tax is due.