Should I surrender Endowment Policy to Pay Inland Revenue???

stretch29

Hi,

I am new to this forum but have been reading the newsletter for over 12 months now. I have recently been trying to get to grips with my finances because I am fed up of being in debt due to poor management.

I have recently received a large tax bill from the Inland Revenue for £5500, although I pay PAYE tax and I am not self employed my employer had been enforcing the wrong tax code for 12 months (on money I had been spending not putting to one side). The Inland revenue will not allow credit card payments but in fairness I don't want to put £5500 on my card. I also have about £3500 of credit card debt, wih an overdraft of £1500 on my current account. My Card and Overdraft are just down to excessive spending which i have not reigned in and I can get rid of the the card and the overdraft very quickly without a problem. The only problem is the inland revenue....

I do have an Endowment Policy that currently has a surrender value of £7250 tha I have been paying into for the last 7 years. I have seen all of the press about Endowment policies and how bad they are and I want to know if i should surrender my policy and star something else up then use the cash to get totally out of debt? Or should I take out a loan to pay off the £5500 and keep the endowment that matures in 2042??? I think i need the money now and in 18 years it is only going to be worth £40K which I am sure I can save by then (with the help of MSE)...

Other than the overdraft I have 1 Loan with about £1200 to pay off which will complete in August 2007 which is not a problem. I have savings of about £1000, not really savings as I was putting money aside to pay off my Inland Revenue Bill.

I would really appreciate some help...

Rgc_3

Id negotiate with inland revenue a pay back, as if as you say its employer thats messed up then IR will be sympathetic to you.. and no interest loans to worry about just a straightforward payback to IR....at least worth phoning IR to verify their stance on this(they normally want repayments in one financial year but if they agree with you it should create extenuating circumstances...worth a call

good luck

rog2

Hi Stretch,

My first reaction would be NOT to surrender your endowment to pay the Inland Revenue. Since the 'debt' was incurred by the enforcement of a wrong code by your employer, I would suggest that you talk to HMRC to see if here are any options, eg payment by instalments, or can they recoup the money by means of a higher tax code?
I don't see why you should pay for the mistake of either the Tax Office, or your employer, and I certainly don't see that you should give up your Endowment over this.
Is your employer prepared to help in any way?

stretch29

Thanks Rog and Rgc.

I have spoken with the Inland Revenue and they said they require payments over six months at a rate of £950 per month, which I simply cannot afford.

My employer has already given me a couple of grand towards the bill which I have reduced from the total leaving me with he £5500.....

Is there any other way of getting around it?

rog2

stretch29 wrote:

Thanks Rog and Rgc.

I have spoken with the Inland Revenue and they said they require payments over six months at a rate of £950 per month, which I simply cannot afford.

My employer has already given me a couple of grand towards the bill which I have reduced from the total leaving me with he £5500.....

Is there any other way of getting around it?

In my opinion HMRC are being totally unreasonable - you could offer the £2k as a first payment, to confirm that you take the debt seriously and make an offer to pay the rest over a period of time that YOU can afford:beer:
Another useful site is: https://www.taxaid.org.uk - they are a charity that specialises in helping people with tax problems.

stretch29

I have been speaking with the endowment company again and they will loan me money against my endowment.....

Has anyone any experience of doing this? I have been told that the endowment company will hapily loan me £6500 at 7% apr against my current endowment. And this will not affect my endowment bonuses.

If I don't pay the loan back but make sure the interest repayments are covered the only effect it will have will be that my endowment matures at £6500 less than its maturity value.

Can anyone advise...

freebird65

Stretch....I don't know exactly and am sure someone more knowledgeable will be along, but a loan from the endowment sounds like a really bad idea. My endowment is earning less than 7% a year and if you're going to pay that much in interest until 2042 then you may as well not have the policy....surely? You'll have paid more in interest than the policy is likely to be worth.

Speak to HMRC again - maybe another person will be more helpful to you - ask them to spread it over a year.

Good luck!

angelavdavis

My advice is don't get yourself in more debt by borrowing against the endowment - the company is only suggesting it because they will make more money from you!

Let HMRC wait for their money, as others have suggested, make them an offer of the £2k as an initial and then offer what you can reasonably afford each month as this situation. Put it in writing, sending the letter by registered post so someone has to sign for it.

Once you have dealt with that one, look at the performance of the endowment to see if the money is better elsewhere.