Chargeable Event Certificate

coffeedrinker

My life endowment policy has just matured and the amount received will be £32,000. It is non-qualifying for tax purposes.

The policy was paid over 25 years and I estimate that the total premiums paid over this time amounts £15,500.

I therefore assume that my gain is £16,500.

I earn £40,216 and have a tax code of 668L

Will I have to pay any tax on the gained amount?

Any help will be gratefully received!

lisyloo

Is it a single policy or joint?

coffeedrinker

It was a joint policy, buy my ex-husband assigned it over to me in 2009.

claretmatt

I was wondering why you believed that the maturity would be treated as a chargeable event and taxed accordingly?

lisyloo

Crystallising a gain i.e. selling units, would surely be chargeable to CGT unless it qualified as tax free (which it doesn't).

What I'm not sure about is whether half the gain belongs to the OP and the other half was gifted and possibly the price re-based for CGT puporses in 2009.
Personally I'd phone HMRC.

claretmatt

The plan differs from traditional investments and therefore if deemed to be taxable would be liable to income tax and not capital gains tax.

Usually changes to the originally policy give rise to a chargeable event. This used to includes plans assigned as part of a divorce settlement.

The rules did however change in 2002 whereby HMRC ruled that

"There is no chargeable event and so no gain when the owner assigns all of the policy rights to another person but receives no money or money's worth in return. A gift of part of the policy rights could have given rise to a gain before the 2001-02 tax year, but cannot do so now."

if you have received a certificate from the insurance company then you need to question why they are deeming it to be non-qualifying. if this relates to the divorce assignment then please refer to link below for further advice on completing self-assessment.

http://www.hmrc.gov.uk/bulletins/assign-divorce.htm

lisyloo

Income tax is bad news then as no allowance and possibly some at 40%.
If the money is available then would it be a good idea to put some into a pension to get income tax relief?
Needs to be quick though to be in the same tax year.

kingstreet

I wish people wouldn't double post.

I spent ages doing this in the Mortgage & Endowment thread.

The chargeable gain is £660 and when it's added to the OP's income, it doesn't generate a higher rate tax liability as her total income is under £44,085.

Chargeable event is £32,000 less £15,500 = £16,500.

£16,500 / 25 complete years = £660 taxable gain added to income for top-slicing. Total income £40,876 which falls below OP's higher rate threshold of £44,085. Basic rate tax paid within the fund and no higher rate tax liability, so no further liability for OP.

kingstreet

I've re-worked this, due to advice from the other thread and I'm setting out here what the re-worked figures show;-

OP has taxable salary in tax year 2010-2011 of £33,531 (after personal allowances) and a chargeable event gain of £16,500 on the maturity of a life policy held for twenty-five years. The basic rate band for 2010-11 is £37,400.

The tax liability for 2010-11 before top-slicing relief is:
Salary (after pers allow) = £33,351
Chargeable event gain = £16,500
Total taxable is therefore = £49,851

Tax @ 20% on £37,400 = £7,480
Tax @ 40% on £12,451 = £4,980

Total liability £12,460

Calculation of relief

Step 1 The OP’s taxable income (including the chargeable event gain) is £49,851. The portion of the chargeable event gain falling into the higher rate band is £12,451 (£49,851 - £37,400).
Some top-slicing relief will be available. N will be twenty-five.

Step 2 The additional tax on this £12,451 is £2,490 (£12,451 x (40% - 20%))
Step 3 The ‘annual equivalent’ of the gain is £660 (£16,500/25)

Step 4 The portion of the ‘annual equivalent’ falling into the higher rate is -£3,389. (£33,351 + £660 - £37,400)

HelpWhereIcan

claretmatt wrote: »

if you have received a certificate from the insurance company then you need to question why they are deeming it to be non-qualifying.

To me, this is the most important question.

The plan has been in force for the full term which is more than 10 years, has been paid by regular premiums and the OP is the original owner.

Even the assignment from her ex should not involve a change in the lives assured and it took place more than 10 years after the plan started so that should not make it non qualifying.

Assuming she did not buy her ex out of the policy or take a loan from it, there is does not appear to be an obvious reason why the policy would become non-qualifying.

This needs to be clarified before any top slicing calculations are looked at as they could be entirely unneccesary.

Hopefully the OP will be able to give more details why it is non qualifying.

edited to add: Just read the links to HMRC docs re divorce posted on this thread to read

However, if this happens because it is part of arrangements on divorce then there is no payment or receipt of value, provided there is also a transfer of the policy under:

• an order of the court, or
• the arrangement for the transfer of property is ratified by a court.

The insurer may have issued a certificate but there is no gain for you to enter on the Tax Return in these circumstances.

kingstreet

The policy status may not have been affected by the transfer, it may have been non-qualifying from the outset.

I know it's unusual, but back in 1986 I was working for Sun Alliance and we had both qualifying and non-qualifying savings endowments.