Selling Endowment-do I Pay Tax?

GalDriver

I know I wouldn't have to pay tax if I surrender my endowment policy (no longer required as it was a low-start mortgage endowment and I sold the house this year) but do I pay either income or capital gains tax if I sell it?? I've had the policy since October 1986 so one firm said I wouldn't as it's over 10 years old. I tried to check this with H.M.Inspector of Taxes who didn't know and said it would depend on the policy and the policy seller would advise me. No points for guessing that they told me to contact the H.M. Inspector of Taxes. I sometimes feel that all my life's a CIRCLE! (at least on the 'phone).

I've had offers to purchase the policy over £3,000 more than the surrender value but if I end up paying 40% tax on most of it as it would put me in that bracket for the year then the surrender sounds the better option. Can anyone tell me the answer to this tax query please? And, if you can, could you also tell me how I can verify it so I don't make an expensive mistake that I cannot afford (I will use the money to pay off credit card debts which I am desparate to rid myself of).

Any advice gratefully received. Thanks

dunstonh

If its gone past 10 years it has "qualified" and you will not be liable to tax on it.

The proceeds from a life assurance policy to an individual are free of tax provided the policy is qualifying. The rules which govern qualification are: a) The premiums must be payable for ten years or 75% of the term whichever is the shorter. For example a ten year endowment plan will qualify after seven and a half years. b) The premiums must be paid regularly on an annual or more frequent basis such as monthly. c) The sum assured must be at least 75% of the total premiums payable over the life of the policy.

GalDriver

Thanks. Excuse my pedantic questioning but that applies to Low-start mortgage endowments from 1986 doesn't it? I would lose over £11,000 in tax if I get this wrong, hence the paranoia!

Could you also tell me where I can get this information officially, in writing without having to pay a financial advisor please? I have 'phoned my local tax office who, after sounding vague about it, said they would get someone to call me back but as we're galloping into a Bank Holiday weekend I fear this won't be until Tuesday and I really would like to have all the information so I can think about my options over the weekend not be still in the dark. Thaks again for your advice, I feel about 90% confident about it but just need that 10% of doubt clearing up. Thanks.

dunstonh

Qualifying rules and top slicing (the calculation for tax) used to be one of the key things you would guarnatee to appear in adviser exams. Low cost endomwents are qualifying policies (as the term is 10 years or more). So providing you meet the criteria and do not create a chargeable event before policy has qualified you will not pay any tax.

The HMRC have a page on the details:
http://www.hmrc.gov.uk/manuals/iptm/IPTM2020.htm

GalDriver

Thank you, you're a star.x

GalDriver

Conclusion...I sold it and although it took longer than they said it would (the promised 4 weeks ran into 2 months) it has enabled me to pay off my credit card debts (and ceremoniously chop them up!!)

When I tried to check with the tax office they were as vague as everyone else but I finally got them to send me the relevant extracts that said, in a very roundabout and contradictory way, that I will NOT be taxed on it (though I may still be a bit twitchy next April!) Thanks to 'dunstonh' too who put me on the right track but I had to hear it for myself. I'm relieved it's over and I'm out of debt - I recommend it to anyone! if at all possible pay off the debts, don't keep thinking you'll manange when they're getting too big to handle. I'd hoped to keep my endowment as a savings after I sold my house but the peace of mind it gives to pay debts off is priceless and the interest I was earning on the endowment was being far outweighed by the interest charged by credit card companies! - I've now started an ISA. I'm not worth as much (financially) as I'd planned to be by this age (galloping up on 50) but I'm out of debt and can sleep at night again. I found this quote while I was struggling and found it inspirational "Life may not be the party we hoped for but while we are here...we should dance" and after years of thinking I needed extra cash to make my 'party' I realised that I can only 'dance' if I don't have a millstone around my neck. Good luck all of you struggling at the moment, I wish you strength of character, mind and heart. Sort it, it's worth it.X