Chargable Event on Halifax Personal Investment Plan

cepheus

I have just received a chargeable event statement on my late Mothers life insurance policy, a Personal Investment Plan, with a tax form to send to the IR. The gain is calculated on the business day before her death for tax purposes.

This appears to be the gain on the value of the policy since she took it out 6 years ago.

Is this chargeable event attributable to her own income before she died, the estate, or the beneficiaries of the estate? (I think the quote below suggests the former)

I wish to wrap up her estate quickly and don't want this to delay things.

A few notes for myself as much as anyone else!

A gain will be treated as part of your income if you are:
• the ‘beneficial’ owner of the rights under the policy. You are likely to
be the beneficial owner if you paid the premium(s) and you (or your estate
after your death) are entitled to any benefits under the policy.

http://www.hmrc.gov.uk/helpsheets/hs320.pdf

John_Pierpoint

I hate the tax treatment of (so called) Life Insurance investments. They can be easy to get in and fiendishly complex to get out.

Senior Sam knows a thing or two about Life Insurance, that he might be prepared to divulge, if you encourage him to drop in here by sending him a PM.

In the meantime, you might care to think through the first question in this exam:

http://www.tax.org.uk/Resources/CIOT/Documents/2010/02/Application%20and%20Interaction%20paper%20(M09)_3.pdf

[Hint, on reading through it, I found I had made assumptions ("......makes an a-s-s out of U & Me" ?) about the relationships and ages of the parties involved !!]

I picked up on about 75% of the pitfalls, as I discovered when reading the answers here.

http://www.tax.org.uk/Resources/CIOT/Documents/2010/02/AI%20May%202009%20ans.pdf

Depending on the circumstances the deceased could end up paying a slug of extra income tax and IHT - which equitably does not seem right to me. :eek:
[Has not the Insurance Company been paying income taxes over the years ?]

From the 2012 budget, as reported by the FT:

The rules for calculating chargeable event gains relating to life insurance that may be liable to income tax were changed. The changes will put beyond doubt that when calculating the amount of a chargeable event gain under a life insurance policy, a deduction for certain gains will only be allowed to the extent that the earlier gains are attributable to one of the persons chargeable to tax under the chargeable event gain regime. The legislation will also ensure interdependent policies (where the value of benefits payable from one policy is dependent on premiums paid into another policy) will be treated as a single policy for the purposes of the chargeable event gain regime.

I am afraid it is Alice in Wonderland stuff to me.

xylophone

http://www.taxationweb.co.uk/tax-articles/general/guide-to-the-taxation-of-investment-bonds-for-accountants-solicitors-and-policyholders.html

"When the policyholder dies, it is treated as if they fully surrendered their bond one day before death, and any gains are included in their final income tax calculation in the year of death - this is where probate lawyers are likely to encounter these policies."

Is this relevant to the situation?

cepheus

Yes I did see that in the link I gave. I guess that 'one day before death' rule makes sure it counts as the deceased income, rather than inheritance or the beneficiaries income!

If that is the case the situation isn't too bad since the profit was only 5k, and since she died on the 17th April any other income in that tax year would be minimal.

However, I notice it has already been taxed at 20% even though she wasn't a taxpayer. Not sure if this can be reclaimed or not if you are an individual (it only says a company isn't entitled to relief).

Of course she had long since signed the relevent IR forms to qualify for Gross payments in normal saving accounts. Unfortunately the Investment and Savings arm of the Halifax don't communicate in the least!

jem16

cepheus wrote: »

However, I notice it has already been taxed at 20% even though she wasn't a taxpayer. Not sure if this can be reclaimed or not if you are an individual (it only says a company isn't entitled to relief).

As far as I'm aware the chargeable gain is worked out by dividing the gain by the total number of years the investment was held. So in this case it's £5k/6 = £833.33.

If that amount added to the total taxable income takes you into higher rate tax then more tax would be payable. If it does not then no further tax is payable. From what you say I can't see that there will be any tax due.

The tax already paid within the plan is non-reclaimable.

It's basically an Investment Bond that was held.

http://www.halifax.co.uk/investments/help-guidance/common-enquiries/personal-investment-plan/

cepheus

Actually the plan itself has some details on tax which confirms some of the above

What about tax?

• We have to pay tax on the income and capital gains from the assets the funds invest in, and this is reflected in the value of the funds.
• This means that if you’re a basic rate taxpayer there’s no further tax for you to pay when you cash in your plan or take withdrawals, unless the gain you’ve made takes you into the higher rate tax band.
• If you’re a higher rate taxpayer, or any gains make you a higher rate taxpayer, when you:
• cash in your plan or,
• withdraw more than 5% a year of the total amount you’ve paid in to your plan you’ll have to pay tax on the gain you’ve made at the differencebetween basic and higher rate income tax.
• If you’re a non-taxpayer, you can’t reclaim the tax we’ve paid.
• If you’re the life covered and you die, the value of the plan may be included in your estate for inheritance tax. If you’re a higher rate taxpayer any gain will be taxable at 20% income tax.
• If you might want to claim age-related personal allowances, tax credits, pension credits or social security benefits, please be aware that this plan could affect your entitlement to them.
• This is only a summary and the tax you have to pay depends on your personal circumstances. Speak to your adviser about tax rules if the plan is under trust. Tax rules may change in future.

http://www.halifax.co.uk/investments/pdfs/1_337847-3.pdf

SeniorSam

Sorry, only just seen this post.

This is a complex area that needs the advice of someone who knows these areas of tax planning and can help accordingly. The actual Life Office involved will have details and be able to clarify any question on the taxation but the advice given on income tax on an Investment Bond seem to be correct.

The tax return made following the death should have taken this into account.


Sam