Friendly Society regular savings plans cashing in early & tax status/implications?

RS2014

Hi - I am hoping someone can clarify a few points for me regarding something that is of concern to me as I would like to fully understand.

Back about 5/6 years a go I took out some various savings plans with Friendly societies including a Scottish Friendly tesp & money builder, LV flexible savings plans, Sheffield mutual regular savings plans. In addition to this I also paid in £50 a month into a Prudential 'with profits' investment bond.

I was and am not experienced in investing/savings etc and at the time thought it would be good to pay in a small amount into various plans each month, to get a lump sum pay out in the future so set the plans up to finish a year after another. The investment bond was in addition to all these plans. Also up until this point I had been very irresponsible with borrowing/debt etc so was trying to do something that I thought was right.

I feel really ignorant and stupid now as I was trying to be disciplined and save etc but I now realised I shouldn’t have as I would have been better just putting all the money into a cash isa and just have been disciplined.

I was on a low salary and still am (basic rate tax payer by a long way;closer to minimum wage)and have no other savings, income etc.

My financial situation changed a little bit about 2.5 years ago and it wasn’t so much I needed the money but more I could make use of the money I was paying out each month into all this. Also by this point I knew that I had made a mistake with my choice of savings due to charges, returns, accessibility etc so I cashed in all the savings plans with friendly societies and the pru investment bond.

I have got all the figures written down etc but in short because I cashed in well before plans were due to end (the maximum time I had paid into one of these was around 3/4 years) I was paid out less than what I paid into every one of these savings plans.

In total I paid in over £6000 and got back around £4500

(The pru bond was the closet I received to making back what I had put in I think I lost about £100) although I know this loss was completely through my fault and ignorance and feel pretty embarrassed I am posting this message.

To the point ………..tax - At the time when I got this all paid out to me (£4500 from various companies) in a very short period of time my understanding was that because there had been no gain on any of these I would not be liable for any tax so took the money, learnt from the mistake carried on.

I was chatting to a friend the other day and we were talking and came onto this - anyway he has told me that even though I had made a loss on all of these plans etc he seems to be under the impression I would be liable for tax due to the lump sums received……

at the time I did not give it a second thought because my understanding was even if I had made any profit this would have only have had to have been declared from a tax perspective if I had made in profit more than what my annual capital gains tax allowance is which was obviously not going to be the case?

I am now really worried about all this as I am on a low income, but am worried now that I might be liable to pay a load of tax and the fact it was never declared and the implications of this etc

I feel really stupid and embarrassed that I did all the above in the first place and now am worried about this from a tax perspective, so thought if I posted a message some people in the know could give me their view or clarification as I do not know what I should do and can’t afford to pay a financial advisor. I just want to fully understand the circumstances as everything I read on the web confuses me more.

Thanks in advance all,

jimjames

In relation to Tax Exempt savings plans their name is totally misleading as for most people as basic rate taxpayers there is no tax to pay anyway.

So if that was what you had and are a basic rate taxpayer then you are safely able to not worry about tax as none is due. The total you have been paid out is also well below the Capital gains threshold of just over £11k so again no issue there (that is for the profit not the amount you've been paid out)

So not sure what your friend is referring to but they may not be aware of the situation with investments. I'm sure that you've had this experience but I'd imagine you are typical of the target audience of these plans but sadly end up out of pocket from them.

There is a forum member planteria who has many such plans and may be able to give some other info for you

innovate

If the plans were classified as savings, any interest would most likely have been taxed at source at basic rate tax. From what you are saying, any interest would not have got you into the higher rate tax band. And getting (some) of your capital back doesn't count as income. Therefore there would be no outstanding income tax.

More likely though the plans were classified as investments, and therefore any gains would be subject to CGT. As there were no gains, no CGT is due.

So whichever way you look at it, you owe no tax.

If it keeps you awake at night, ring up your local tax office and ask them to confirm. But I think you should just stop worrying.

RS2014

Jim James and Innovate thank you for your replies which are appreciated.

I think £25 a month in 1 plan might work for a very small sector of people but not multiple plans like I had.

I think I will try and contact the tax office as it seems it is ok - and hopefully going forward I will make better financial choices.

I think that sounds pretty conclusive does everyone else think this or have an opinion as I would be grateful?

planteria

you haven't made a capital gain, so you dont have to pay tax.
i would Not contact your tax office, and just don't worry.
sorry to read that you took out plans that didn't meet your requirements afterall.
it would have been interesting to analyse whether you would be right to start the plans, and whether to close some/all of them, but you've already gone past that stage.
i just have £25/m spread across 4 TESPs as it stands, not really "many";)

innovate

planteria wrote: »

i would Not contact your tax office

Why not? There is nothing to hide. Opinions on an Internet forum are all very well, but it is the HMRC who decide whether tax is due or not. Whilst we are all confident there is no tax to pay in the situation as posted by the OP, if the OP does want formal confirmation, the only place they can get it from is the HMRC. Whom I have found very helpful and non-threatening over the years when I approached them with questions about sometimes unusual situations.

RS2014

Thank you for everyone’s thoughts I am pretty confident that everything isfine but innovate you are correct in saying I should just contact tax office toconfirm all this which I am going to do as I never had anything to hide in thefirst place - I never even gave it second thought at the time it was just recentlywhen it came into conversation - I just wanted other opinions before hand as Iwas not sure what possible implications would be and was worried.

I get the general impression that the tesp are not very well thought of nowdue to high charges inflexibility and the returns really do not look great.

I might be starting a whole other thread right now but in regards to theseplans and Friendly societies what does everyone think the future may hold withthem. Will they be around in 20 years time or just get less and less? Is therean argument that if one took out a plan with a fs be in a tesp or some otherform of bond etc it could work out really beneficial in regards to if in thefuture there was a takeover and consolidation or buyout or am I just talking rubbish.I don’t really understand it all but I remember reading about a friendlysociety that got taken over and all the members benefited quite well from theplans they had and received a windfall. I was trying to search for it on theweb but couldn’t find the name?

Besides all his I am mainly just concentrating on savings in a cash isa andstocks and shares Isa for savings now and that is probably I best I think as Iwill be well with int he limits of these with what I have to save?

innovate

There are one or two long threads on TESPs and Friendly Societies over on the ISA and tax-free savings sub-board. The bottom line is that all but user planteria are of the view that they are outdated, inefficient and vastly inferior to investments in equities and funds.

Also, windfalls from takeovers (carpetbagging) are basically all a thing of the past.

planteria

:laugh: innovate.

here are a couple of threads that may be of interest, RS2014. you can see for yourself whether anyone else thinks they are a good idea. along with other myths, such as all these private messages i keep sending to innovate to try to change his mind about TESPs:T

https://forums.moneysavingexpert.com/discussion/4671765

https://forums.moneysavingexpert.com/discussion/4856974

i like mutuals, and i think there is a space for investing in them alongside other things. putting the silly sniping aside, i invest my full ISA allowance each year, and invest in a SIPP, both in Unit Trusts and/or Equities. In addition i have the TESPs i mentioned above. and i also have an Investment Bond with LV and a small Insurance ISA with Royal London.

i guess that the Friendly Society demutualisation you refer to was Sons of Temperance. some MSE contributors were beneficiaries of the windfall, but I am not one of them.

i suspect that there will be further consolidation in the sector. whether further windfalls will result, we shall have to see. if any head my way i shan't complain though:)

RS2014

Thanks for the replies everyone - Yes Sons of Temperance was the one I was thinking of.

Personally for me it was a mistake because of my circumstances, the fact i was fixed in to a set term and paying out much larger amounts than £25 each month and was paying charges on every fund - so it was not worth it but everyones circumstances are different and I was just trying to save but would just have been better sticking it in an ISA and basic savings and would have least what I put in but you live and you learn.

I guess if it is just a small amount one has invested in there is nothing wrong with that at all and it all comes down to work works for people and their finances and situation.

Even with my expereince I still like the idea of putting a smaller amount of money away each month with a FS and receiving a larger payout in the future - I am still investing in 1 plan - a small amount each month but that is it but I do not know if that makes me ignorant especially after my experience. The FS that it is are one of the only ones that pretty much gurantee the sum assured is above what you pay in what is pretty rare now from what I have seen having a look.

I do wonder how things will develop over the next 10/20 years with the Friendly Societys, if they will become a thing of the past or diversify in some way or just all taken over etc.

Are all investments with FS 100% protected now up to whatever the set limit was with the banks?

And I guess that would be with the amount invested not the 'set bonuses' that once given cannot be taken away each year. I wonder how all that would work.

I always liked the idea of endowments but I guess it is a thing of the past now because of everything that has happened what have these been replaced by now then for long term investment to pay off a mortgage?

planteria

i suppose they have been replaced by 'ISA mortgages' in a way, but also many people just look to repay over time rather than have an investment with which to repay the loan.

i had Sum Assured values above the total to be invested with both Kingston Unity and Sheffield Mutual.

all the best with things moving forwards:)