deficiency relief

PaulCooper

I have just closed a 'whole of life' policy with Friends Provident, lots of reasons for closing it, but that is a separate subject. I've just received a letter from Friends Provident stating that the policy made a loss of £21389.58 (whopee!), they call this the 'deficiency amount' and that I can probably claim 'deficiency relief' against my earnings for this year (I am a higher rate tax payer).
On the basis I have never heard of this type of relief and it sounds a bit obscure, is it as simple as that---- they have advised me of the deficiency amount, I advise HMRC and they give me tax relief on this amount?.
After, what is obviously a disasterous policy performance, it sounds too good to be true, especially as in this year I would be able to utilise all of this amount aganst higher taxed earnings

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help appreciated
Thanks
Paul

agrinnall

Although I haven't looked at it myself I would like to hope that this will help to explain it.

http://www.hmrc.gov.uk/budget2010/march/life-def-rel-tech-note-0365.htm

PaulCooper

Dear Agrinall

Thanks very much for the link, I think it does contain the answer, although I have to confess it looks like something a tax accountant might understand better than me. It looks to a layman like me that I can offset the whole of this loss against my earnings.
If anyone else with a better understanding of tax talk can confirm this I'd be endebted to them
Thanks
Paul

Elaine_Wilson

That is a typical bit of tax legislation. Seems to give rise to more questions than answers.

First, you say you terminated the policy for a number of reasons. As long as tax relief was not the main reason you can forget the anti avoidance rule. The fact that you are asking the question here would, to me, indicate that you did not have this in mind when making the decision.

I'm not too clear about how the relief is calculated if you receive dividends, particularly if some are taxed at the higher rate. Does this apply to you?

If not, then I think you do just get relief for the loss by set off against your earnings. You will probably have to wait until the end of the tax year to claim this, though.

If the dividend complication does apply post up some figures (fictitious if you like) and I'll play around with a calculation.

PaulCooper

Thanks for the offer Elaine, very much appreciated.
The reasons for closing the policy was down to the treatment that I was getting as a customer from Friends Provident (another story). I was totally amazed when I received the letter intimating I could get tax relief on the loss they landed me with.
I think I will be a straight forward PAYE tax payer, with earnings only, I do claim relief for car purchase for business use and interest on borrowings to purchase shares in the company I work for. No pension contributions (all done with salary sacrifice), so this year I was looking forward to paying a fair bit of tax at 40% (not up to the 50% band)--- I have no probelem with waiting until I get my next tax return form, the excitment of filling it in always gets me going.
There is another possibility that I will receive dividends in this tax year of approximately £13000, which I think tax has already been paid by the company at 10% I'm always a bit hazy on this, but it's not usually a problem as they are usually owned by my wife, who is a lower rate tax payer

Thanks
Paul