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endowment liable for tax?

my partner's terrible endowment policy has just matured, and they say that because she was unable to increase the payments, that the policy will be taxable ?

any ideas, she's earning just over 40% threshold, and this payment is about 15k...

also on her self assesment last year we recorded a loss on her buytolet, would we be allowed to offset this loss ?


i'm very confused, so comments welcome - many thanks, Will

Comments

  • GuidoT
    GuidoT Posts: 198 Forumite
    edited 31 January 2011 at 9:55PM
    I am no expert but the only part that would be taxable is the growth, the sum you pay in per month is not taxed - you have of course been taxed on this already.

    You cannot offset income losses on properties against other income.

    I think there is a rule about how long you hold the policy and then it becomes tax free - I have now posted a link below.

    I cannot imagine there would be much tax to pay at all, if it has performed poorly.
  • Should be a qualifying life policy so proceeds are free of UK Income and Cap Gains Tax.
    I am a Mortgage Advisor
    You should note that this site doesn't check my status as a Mortgage Advisor, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • thats what i thought, but we have a letter from countrywide saying that as we didn't increase the ammount payable on the policy it is no longer valid, and so they have notified hmrc that it is liable.

    i think regardless i will need professional advice on this, as w actually have 3 of these maturing in the same tax year. but i'd like to understand it better...

    this policy was paid to term (i think 20 years and 15 years respectivly)

    i thought that they were not liable at all in this case but countrywide disagree.
  • A policy does not need alteration to continue to be qualifying as this is measured supposedly at outset.

    In fact any amendment might make it non qualifying.

    I would ask them to explain why as that wont cost you anything.
    I am a Mortgage Advisor
    You should note that this site doesn't check my status as a Mortgage Advisor, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Annisele
    Annisele Posts: 4,827
    First Anniversary Name Dropper First Post Combo Breaker
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    I think (not certain) that Countrywide's endowment policies had reviews built into them. If the policyholder chose not to increase their premium at review, then that counted as a change to the contract - so I suppose the policies could potentially lose their qualifying status.

    But as others have said, the gain might not be that much (the gain will certainly be substantially lower than the maturity value of the policy). Have Countrywide given you an indication of what it thinks the chargeable gain will be?
  • They should send you a Chargeable Event Certificate if there is such an event to report. Did you get one?
    I am a Mortgage Advisor
    You should note that this site doesn't check my status as a Mortgage Advisor, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • i have challenged this, and as been sent it appears that if the payments were not increased as per their advice that this is deamed a change - how is this legal ? - anyway can someone explain what would be subject to capital gains, it can't be the whole sum, or even the return minus the payments ? there must be some allowance for the time it was qualifying ?

    would giving the paperwork to an ifa be a good step ?

    W.
  • dunstonh
    dunstonh Posts: 116,027
    Name Dropper First Anniversary Combo Breaker First Post
    Forumite
    i have challenged this, and as been sent it appears that if the payments were not increased as per their advice that this is deamed a change - how is this legal ?

    I cant see what difference it would have made. Had the premiums been increased at any point in the final 10 years then it would not have qualified either. This is why low start endowments always had to finish their increase before the final 10 year period.
    anyway can someone explain what would be subject to capital gains, it can't be the whole sum, or even the return minus the payments ? there must be some allowance for the time it was qualifying ?

    None of it is subject to CGT. Its income tax.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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