Purchased Life Annuity Calculation

cgzz

Just wondering if anyone can help? Is there a calculator to project income from a Purchased Life Annuity? For example a pension pot of £100,000. Take lump sum of £25,000 and use this for a Purchased Life Annuity and purchase a standard annuity with the £75,000. The £75,000 is easy to find projected income results using calculators in, for example, Money Advice. However I can't find anywhere that does the same for a Purchased Life Annuity. Also I want to understand how income tax is calculated on a PLA as it seems to be different from a standard annuity.

Thanks in advance for any help.

xylophone

http://www.pruadviser.co.uk/content/support/technical_centre/purchase_life_annuity/

http://www.hmrc.gov.uk/forms/pla6.pdf
http://www.hmrc.gov.uk/incometax/life-annuity-income.htm
http://www.annuities-online.com/annuity-guide/purchased-life-annuity/ might be worth a look?

kidmugsy

cgzz wrote: »

Just wondering if anyone can help? Is there a calculator to project income from a Purchased Life Annuity?

I don't know the answer but I can give you two tips.

(i) The annuity rate tends to be a bit lower than for pension annuities because it's mainly people who are unusually healthy who buy PLAs.

(ii) The detail of the tax depends on your age because HMRC views the annuity as consisting of two components: the return of your capital, which it won't tax, and an income from that capital, which it will.

cgzz

Thanks for the replies everyone. So income from a PLA is made up of 2 elements where the return on capital element isn't taxed but the interest element is taxed? Where can I find the interest rates used to calculate the interest element for a PLA?

SeekTruth

The simplest way to find the size of the taxable and non-taxable elements is to get a quote from an annuity provider. Alternatively you can try and understand:
http://www.hmrc.gov.uk/manuals/iptm/IPTM4310.htm
http://www.hmrc.gov.uk/manuals/iptm/iptm4330.htm
http://www.hmrc.gov.uk/manuals/iptm/iptm4320.htm

gterr

I see from reading the HMRC links that PLAs can have no non-taxable element if the money to buy the PLA has come from a property sale. Would this still apply if the money from the property sale was first invested in a S&S ISA or S&S fund, and some years later used to buy a PLA?
And why does this restriction apply anyway?

(As you can guess, this is something that might apply to me. In my case the funds will come from the sale of a property associated with a business. There might be a lag of 15 years or so before I would want to buy a PLA.)