Cshed in Endowment, Does it affect Tax Credits?

thedaddy74

Please help!

We cashed in two Standard Life endowment policies after about 12 years of paying in. The total amounts received are £14,000.

We understand that as a standard rate tax payers we will have already paid income tax on the interest as it was accumlated (is this correct?) and therefore the money does not have to be declared as income to the HMRC?

The main query we have is- how much of this £14K do we have to declare on our Tax Credits form as "other income"? We've assumed that it's not all classed as "income" as an endowment is basically just a savings account. Is it just the interest? If so, the interest for which year? Where do we get that information from?

Sorry for the log post, not too sure what we're on about.

Any help would be appreciated as we're begining to wish we'd just left it alone!

Thanks

payless

guess it was surrenderred early = does depend if you made a profit.... its called a chargeable event, they should send you a certificate..



If the policy is surrendered within the first 10 years or 75% of the term if sooner,the gain could be liable to income tax as this is a chargeable gain. There will only be a chargeable gain if the surrender value exceeds the total premiums paid

Normally only an issue if the "top sliced " profit makes you higher rate - but If a profit is made then yes it can effect tax credits see http://www.hmrc.gov.uk/manuals/iptm/iptm3110.htm

thedaddy74

thanks for the quick reply. I'm new to all of this so please excuse me if i don't seem to know much!

One policy of £11k was definatley over 14 years old.
The other polciy of £3k was probaply about 10 years old.

When you say "they should send you a certificate", do you mean Standard Life? If i need to phone up about the certificate, what are they called?

Are you saying that the profit (the difference between what i paid in and what i got out) is all classed as "other income" for tax credits?

Should i get this info from SL?

Once again, many thanks for your help, i'm worried to death about what to decalre and what not to.....

payless

When you say "they should send you a certificate", do you mean Standard Life?

YEP

If i need to phone up about the certificate, what are they called?

Chargeable Event

Are you saying that the profit (the difference between what i paid in and what i got out) is all classed as "other income" for tax credits?

possibly .. previously ( before tax credits) it was only an issue if the averaged annual gain takes you into a higher tax bracket ... I don't know about tax credits ... at a guess I would say its the total ( not averaged) profit that is used.

HMRC or tax credits office should be able to help, albeit it may be someone higher than the normal helpdesk

thedaddy74

To be honest, given our level of income, i don't think it's the income tax we've got a problem with, just the tax credits.

So the "Chargable Event" certificate off Standard Life should tell us what profit we've made, over what period, to tell the Tax Credit people?

I'm not even sure what rate higher tax kicks in (is it £40K), but given that my wife and I earn less than £15k each, it's unlikely to push us into the higher banding even of all of the endowment is profit!

I don't think that the profit achieved on either endowment is going to amount to much, but at least i'll know what to ask for off SL. According to the link to HMRC, SL should send me a certificate within 3 months anyway i think.

Just wish that SL had mentioned a possible liability prior to us cashing it in. If knew all of this before hand, i think i'd have left it alone of just paid it off the mortgage as a lump sum.

Thanks Payless, i'd like to say i'll return the favour some day, but as you can tell from my knowledge on the subject- that's unlikley!!!

payless

from what you say / recent endowmnent performance you might not find there's much to worry about.

Thanks Payless, i'd like to say i'll return the favour some day, but as you can tell from my knowledge on the subject- that's unlikley!!!

what goes aound comes around... or so I hope//

just one point for when that good turn comes back my way ..... my username is payless, would you believe the site allowed a newer user to use Payless

TrickyDicky101

I think payless (with a small 'p' ) is correct:
http://www.hmrc.gov.uk/taxcredits/start/claiming/income-hours/other-income.htm#1

Under "Income from savings and investments" it states

You should also include any chargeable event gains from a life insurance policy, for example from the sale of an investment bond. The amount of the gain will be shown on the certificate issued by your insurer.

this would cover the chargeable event from cashing in your endowment. Only if your other income (including the total chargeable event per your certificate) exceeds £300 will you need to declare anything and then only the excess over the £300.

thedaddy74

See, small "p" I'm learning already- sorry about the error!

Thanks for the help, sounds like I've no tax liability and probably only a small extra bit of income as far as Tax Credits are concerned.

Just got to wait for that certificate now to see what's entered under "gain" (not much if the letters Standard Life kept sending me saying "Red Alert- Danger of Shortfall" were anything to go by).

I'll sleep better tonight.

Cheers