Income from Pru with profit bond

Polly_Sparky

Is my understanding correct, any tax due on one of these is deferred until "encashment"

My parents opted to take an income of 4% of the initial value each month of £119.00. The capital value of the bond is currently in the region of £26000. Initial investment 28000. They have held this since 2002

What do I have to declare to the HMRC?

All a bit confusing. My father has recently passed away and I am filling in tax form P161 for my mother who was a non tax payer but will now receive my Father's occupational pension so becomes a basic rate tax payer.

jem16

Polly_Sparky wrote: »

Is my understanding correct, any tax due on one of these is deferred until "encashment"

Yes unless a chargeable event occurs.

My parents opted to take an income of 4% of the initial value each month of £119.00. The capital value of the bond is currently in the region of £26000. Initial investment 28000. They have held this since 2002

What do I have to declare to the HMRC?

Nothing. They are allowed to make a 5% withdrawal of initial investment each tax year without incurring a chargeable event.

All a bit confusing. My father has recently passed away and I am filling in tax form P161 for my mother who was a non tax payer but will now receive my Father's occupational pension so becomes a basic rate tax payer.

There is no need to mention this income.

Polly_Sparky

Thanks jem! Really grateful for your help, my question seems to have baffled everyone else (including HMRC).

xylophone

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

jem16

Polly_Sparky wrote: »

Thanks jem! Really grateful for your help, my question seems to have baffled everyone else (including HMRC).

Just to check. Was the investment bond in joint names or just in one name and if so whose?

If it was solely in your Dad's name, it may have a different answer.

Polly_Sparky

There are 3 remaining with Mother. These were either in joint names or Mothers name only.

A further 2: one in Fathers name on Fathers life will pay out into his Estate. And one in fathers name but on joint life so currently has no owner. As executors we are planning to cash it in after seeking advice if this is the most sensible thing to do ?? Mother doesn't need the income and we need to disperse some of her wealth away (to avoid further tax/ potential care home fees)

kidmugsy

Polly_Sparky wrote: »

(to avoid further tax/ potential care home fees)

The first is legitimate; the second may not be. Google "deprivation of assets".

jem16

Polly_Sparky wrote: »

There are 3 remaining with Mother. These were either in joint names or Mothers name only.

A further 2: one in Fathers name on Fathers life will pay out into his Estate. And one in fathers name but on joint life so currently has no owner. As executors we are planning to cash it in after seeking advice if this is the most sensible thing to do ??

Both of these will incur possible chargeable gains so probably a good idea to get advice.

Mother doesn't need the income and we need to disperse some of her wealth away (to avoid further tax/ potential care home fees)

As already said, tax avoidance is perfectly legitimate but giving away wealth to avoid future care home fees will be an issue and one which the council would pursue.

Polly_Sparky

I have taken onboard your comments about care home fees.

But now feel like we are back to square one and unsure again about what to fill in for Mother's P161 - tax coding following bereavement. Mother once non tax payer but now basic rate tax payer due to receiving deceased husbands pension.

Do any of these bonds owned by her need to be declared to HMRC? the income she receives is less than 5% of the initial value per year ie the amount allowable and is her own money that she is withdrawing. The tax will be paid when these bonds are terminated as far as I can see.

jem16

Polly_Sparky wrote: »

Do any of these bonds owned by her need to be declared to HMRC? the income she receives is less than 5% of the initial value per year ie the amount allowable and is her own money that she is withdrawing. The tax will be paid when these bonds are terminated as far as I can see.

Nothing's changed with regards to your Mum with income from the bonds. The income she is withdrawing is "tax free" or tax deferred to be more precise.

There is no need to declare this income.