Endowment surrender and tax

bill_rand

Hi folks after some advice.
I have a low cost endowment with profits that matures in two years. I need some money now due to circumstances and am looking at surrender/selling the policy.I have been paying in £61 pm for the last 23yrs and the last letter i had from the company was an amber alert, the figures on maturity were quoted at 39000, 40000 and 42500 depending on the rates.

However i have just received a written surrender value as of 25 Jan of £44,400. Which looks bloody good to me at the moment lol. I have queried this figure twice by phone and they assure me it is correct, seems very high to me.

It appears from the letter that this figure is what i would receive after costs and fees are taken out.

I am unsure however of whether i would have to pay any tax on this £44400.

I am a lower rate tax payer, and to be honest in the last 4 years have paid no tax as my income has fallen below the threshold.

Am i right in assuming if i keep the policy until maturity it is completely tax exempt?

And if i sell/surrender will i have to pay any tax? and how much?

Thanks for any help or advice his is a big decision for me

holly_hobby

As a qualifying policy (and it having been in force and prem paid for over 10 yrs, which is the main but not only qualifying requirement for applicable policies), the proceeds are free from tax, be that either on maturity or in this case early surrender - so don't worry about the sum being eroded by any tax liability.

Please consider surrender carefully, if this is a With Profits policy, surrendering early will forfeit any possible terminal bonus at maturity, and in the case of WP and Unit Linked contracts, the provision of life cover which is held under a LCE.

Howeve (and referring to WP pols), this must be offset against the prems payable over the remaining term, the possible (or low) addition of further reversionary bonsues, and the discussed TB. The EMVs you have recd are based on prescribed rates, whereby the returns achieved may be higher or lower - so you may achieve an even greater matruity value at the end of the term.

If its a unit linked contract, the value of the fund is based on the underlying value of the units at the time of surrender (which is subject to change depening upon market conditions), and there is no addition of a terminal bonus at maturity.

Its a difficult choice, which needs to be balanced on all aspects discussed - and I am afraid only one you can make - whether to take the money and run or stick in for the long haul !

Hope this helps

Holly

dunstonh

I am unsure however of whether i would have to pay any tax on this £44400.

If it is a qualifying endomwent (rather than non-qualifying) then you should be fine as with 2 years to go, it would have met qualifying criteria (which means basically, no tax to pay).

If your endowment is Std Life, Aviva or Pearl then be wary that early surrender will lose any mortgage endowment promise that exists.

Also, if it is with profits and the projections are lower than the current value, then this suggests it is understating the potential maturity. This often happens on conventional with profits plans where they project from the basic sum assured plus annual bonus but dont include the current accrued terminal bonus.

bill_rand

Thanks for the prompt replies guys , food for thought . The policy is a low cost with profits. Initially with Pioneer Mutual now owned by Phoenix.

I think whats throwing me apart from the tax side, i think you have both cleared that up for me, is the high surrender value compared to the forecast maturity value they are estimating, so it could be the final sum plus term bonus may be a lot higher than the top figure they estimate?

I wish to god i didnt need some money now lol

bill_rand

Would it be worth looking into selling it on as i see they may pay up tp 20% more than the surrender value quoted?

dunstonh

The third party market has died a death. Plus, with 2 years to go its too short.

sebastianj

Are endowment insurance still in existance? Is it worth me try to remortgage and get one of these out?
sebastian

bill_rand

Ok thanks, !!!!!! lol oh well decisions decisions thanks guys i owe you one.

bill_rand

Oh just a thought any ideas very roughly how much the policy might be worth at the end with TB added with your experience of such things. I know its impossible to say but could it be thousands more than the £44000 currently offered, and i know it could be thousands less lol

Dick_here

Phone them and ask what an equivalent policy is currently maturing at - then you can make an informed decision !

holly_hobby

It would be very difficult to give you any idea on what the TB may be - as it depends upon whats left in the pot in your maturing year, and TB can and do vary year to year depending upon the constraints placed on the WP fund.

Hope this helps

Holly