Investment Bond gain after death

HawkE

A life assurance investment bond was held as a sole life assured by a person who died which gave rise to chargeable event gain which is assessed on the deceased's Estate as if the event occurred just prior to death, which occurred on 10th Feb 2013 with a market value of £50,000 on the date of death.

The life assurance company was notified a few weeks after death (on March 15th) and advised that the probate value of the life assurance is £50,000 [with a chargeable event gain of £20,000 on the date of death]. They also advised that the date used to calculate the death benefit is 15th March 2013, and the death benefit is £60,000.

On whom is the gain of £10,000 between the date of death and date of calculation of death benefit assessable?

busicat

Good question. Life cos. don't seem to address this, though it must come up a lot.

Could be wrong, but I think it's the personal reps in the period of administration, and they are due to pay income tax at basic rate, so nothing to pay, as basic rate is already deemed to be paid within a life investment bond. (plus, no further chargeable event so arguably no trigger for tax on anyone anyway.)

HawkE

It is srtange to me that Life Cos don't address this. I have tried asking the provider but it says I need to ask HMRC! I have not found anything online either about the treatment.

jaybeetoo

http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/basics.htm

HawkE

Busicat, I think you must be right that it has to be the personal representatives. I guess there would be three possibilities:


(a) the post death gain of £10k is treated as a capital gain on the personal representatives;
(b) the post death gain is treated as income on the personal representatives.... just as is the chargeable event gain upon death gave rise to income.....i.e. it is treated as if income tax has been paid
(c) the post death gain is not subject to capital gains or income tax on the basis that the investment bond is taxed throughout it's life


Anybody know definitively?

magpiecottage

A gain of 20% in five weeks is truly impressive. Are you sure this is correct?

HawkE

The gain is not correct...for ease of posing the question the amounts have been rounded...the gain was less. However, the questions still remains...is there any liabiility to capital gains or income tax on the increase in value of the investment bond between date of death and date of notification?

dunstonh

Investment bonds do not have any liability for capital gains tax at all. The insurer issues the chargeable event certificate and that is the figure that is used in the top slicing calculation to see if there is any gain that needs to be declared for higher rate tax purposes.

If the bond is assigned to another person, they take on any difference that applies as there is no official gain on the policy until another chargeable event occurs. If the bond is then surrendered, then a second chargeable event has occurred and that would see another chargeable event certificate issued.

HawkE

dunstonh wrote: »

Investment bonds do not have any liability for capital gains tax at all. The insurer issues the chargeable event certificate and that is the figure that is used in the top slicing calculation to see if there is any gain that needs to be declared for higher rate tax purposes.

If the bond is assigned to another person, they take on any difference that applies as there is no official gain on the policy until another chargeable event occurs. If the bond is then surrendered, then a second chargeable event has occurred and that would see another chargeable event certificate issued.

Thanks for the clarification. So no capital gain. And for personal representatives no additional income tax. So no tax implications on the extra £10k in my original post....:D