Prudential Investment Bond

glideoversummers

Hello, This is my first post, and would be grateful for your advice.
I have a Prudential and a Legal & General Investment Bond,and due to changes in my financial circumstances, I may have to cash them earlier than I would have ideally wished.
I bought them in Sept 2010 for £50,000 each,and they are currently worth approximately £70,000 each They both still have early redemption penalties against them,that end in September this year, amounting to approximately £3000 in total.
Having never never sold this type of investment before, could anybody kindly advise me how to calculate the CGT (if relevant) and tax payable on the £40,000 capital gain. I am a standard rate tax payer.
Many thanks in advance.

jem16

glideoversummers wrote: »

Having never never sold this type of investment before, could anybody kindly advise me how to calculate the CGT (if relevant) and tax payable on the £40,000 capital gain. I am a standard rate tax payer.
Many thanks in advance.

There's no CGT as it's all treated as Income tax.

To calculate if further tax is payable you take the gain and divide by the number of years you have held the Bond. So if cashing in before September it would be £40,000 divided by 4 which is £10k. This £10k would be added to your normal taxable income. If it does not take you into higher rate tax then no further income tax is due.

If it does make you cross into higher rate tax then further tax would be due.

glideoversummers

Hi Jem16,
Thanks so much for your perfectly clear explanation, I'm very grateful to you.
glideoversummers

macca1974

Just to quickly add, if you aren't surrendering them fully, make sure that you surrender "full policies" rather than a "partial withdrawal across policies" as the tax on the second is considerably higher. Won't be a problem if you are surrendering in full, but if you are leaving some in either of them then make sure you do it right.

If you have still got a £3K exit penalty after 5 years, then whoever you took them out through took a healthy initial commission so hopefully they would be willing to help you with it, I would contact them and get them to help you with the surrender (i.e. getting the forms and making sure they are completed correctly).

Its also worth mentioning that if the "top sliced" element of the gain (i.e the £10K that will be added to your income to see if you are still a basic rate tax payer) is likely to take you into higher rate tax, then it might be worth looking at surrendering some of the bond this tax year and then waiting until April 6th to surrender the rest. Again, though, I would talk to the adviser that recommended the bonds.

glideoversummers

Hi Macca1974
Yes I think the IFA did take a nice commission,but I'll certainly have a chat with him.
Great advice,thanks very much for replying.