Will my retired parents get taxed if they withdraw all funds from Pru Bonds Fund

James110252

In 1993 my parents jointly invested £20K in a Prudentail Prudence Bond with Profits Fund. In February this year the value of the fund was over 2.5 times their original investment. With both my parents now in their late 80's early 90's I am trying to sort out their current financial affairs plus ensuring that they have adeqaute funds to fall back on in their remaining years.

Other than this investment all they have is a small amount of money in the bank and plus their state pension which amounts to approx £225 per week between them.

My question is if they were to decide to withdraw all their investment would they be liable to pay tax and if so would it be taken at source?. If they were subject to tax what would be the minimum they could withdraw in any tax year to avoid paying tax. I also note that from the policy that the bond would automatically become payable when all the lives assured have died.

James110252

McKneff

Only my personal experience but as far as I know no tax is payable, only tax on the interest it would bring over and above their tax allowances. They need to fill in a form R85 so that it is not taxed at source.

At their ages their tax allowance is £9745 each per year, if you take their pensions into account and the interest the savings over the year it unlikely that tax even then is payable.

Well done to them for investing so well.

By the way, welcome to the boards,:):wave:

jem16

James110252 wrote: »

My question is if they were to decide to withdraw all their investment would they be liable to pay tax and if so would it be taken at source?. If they were subject to tax what would be the minimum they could withdraw in any tax year to avoid paying tax. I also note that from the policy that the bond would automatically become payable when all the lives assured have died.

This may help to explain the taxation on Investment Bonds such as this.

http://www.pru.co.uk/pdf/investments/INVS0002.pdf

Basically you take the profit of £50k and divide by the number of years the policy has been held, in this case 14 years. That would give £3571.43. That amount is then added to your parents normal income. If that takes them into higher rate tax, extra tax would have to be paid.

That's not going to happen in your parents case so there will be no tax liability if they cash in the whole bond.

McKneff wrote: »

Only my personal experience but as far as I know no tax is payable, only tax on the interest it would bring over and above their tax allowances. They need to fill in a form R85 so that it is not taxed at source.

It's an Investment Bond and does not gain interest.

dunstonh

The Pru bond is not included in the means test for long term care. Whilst for some people, that isnt important, for others it may be.

Pru bonus rates are also typically higher than most savings accounts. So, what would be the reason for taking the money out?