Tax-free lump sums

Mensch

I think I understand the rules on recycling TFLS from a pension, but what if my windfall is a soon-to-mature life insurance policy (worth about £80,000) which I took out in Germany 30 years ago when I was working there?


It's free of tax in Germany. Is that also the case here in the UK? If I were so inclined, could I stick £20,000 (my current annual salary) into an already established Stakeholder pension?


As my wife and I are also looking to buy some property in Spain in about two years, would we be better off just leaving it in Euros in a German bank account to be used to help fund that?


Grateful for any advice.

Your_Hero

Mensch wrote: »

I think I understand the rules on recycling TFLS from a pension, but what if my windfall is a soon-to-mature life insurance policy (worth about £80,000) which I took out in Germany 30 years ago when I was working there? It's free of tax in Germany. Is that also the case here in the UK?

I don't know if it's taxable or not as it would depend on the structure of the plan itself and how HMRC treats it. UK life assurance policies are generally split between 'qualifying' and 'non-qualifying' plans and taxed accordingly. Best to consult HMRC or speak to a tax adviser.

If I were so inclined, could I stick £20,000 (my current annual salary) into an already established Stakeholder pension?

Yes 100% of your earned income (capped at £40k) is the max. amount you can pay in per year. So £20,000 less any contributions made already.

As my wife and I are also looking to buy some property in Spain in about two years, would we be better off just leaving it in Euros in a German bank account to be used to help fund that?

It would seem logical to. You are talking about a completely different issue now.

Also to note, as UK residents, tax is due on your worldwide income and gains. So even if you left the proceeds in Germany, it may still be subject to UK tax. Speak to HMRC about the tax treatment of the life insurance policy.

jamesd

If you will be 55 or older when it comes time to move then it makes sense to put the money into a pension to get the pension tax relief on the 25% of the pension pot being taken out that will be the tax free lump sum.

Mensch

Thanks for that, folks.


Another couple of questions on the same topic: Given an annual income of £20000, my current annual contributions total 12% and those of my employer 15%. Is that the total to be deducted from the £20000 or should the figure include what HMRC adds on?


Second, can I backdate this at all to cover previous years?

jem16

Mensch wrote: »

Thanks for that, folks.


Another couple of questions on the same topic: Given an annual income of £20000, my current annual contributions total 12% and those of my employer 15%. Is that the total to be deducted from the £20000 or should the figure include what HMRC adds on?

It's only your contributions that need to be counted.

Second, can I backdate this at all to cover previous years?

Tax relief wise - no.

Annual allowance wise - yes.

xylophone

http://www.hmrc.gov.uk/manuals/iptm/iptm3330.htm

http://www.taxationweb.co.uk/forum/maturing-german-life-insurance-policy-t35952.html

might be worth a look.