Aviva says they don't know how to implement the new pension rules???

SallyG

How easy is it to defer and restart basic state pension - just wondering if you could take a short regular BSP holiday - eg defer your state pension whilst you take your drawdown for 6 months - then suspend drawdown and restart BSP - but I think you can only defer twice ? My kids wouldn't inherit the BSP lump sum if I croaked - so I feel short stints of deferment would lower my fear/risk of total loss? Wish I could defer/grow say half BSP and keep drawdown income tax low................

mgdavid

SallyG wrote: »

How easy is it to defer and restart basic state pension - just wondering if you could take a short regular BSP holiday - eg defer your state pension whilst you take your drawdown for 6 months - then suspend drawdown and restart BSP - but I think you can only defer twice ? My kids wouldn't inherit the BSP lump sum if I croaked - so I feel short stints of deferment would lower my fear/risk of total loss? Wish I could defer/grow say half BSP and keep drawdown income tax low................

very easy, this may help:
https://www.gov.uk/government/publications/deferring-your-state-pension

HappyHarry

The OP may want to post again under the Savings And Investments part of the forum.

the Aegon customer service rep said withdrawals were liable for income tax

They are liable for income tax, but the person may not have to pay any. If the bond is onshore, and the person's income plus their average gain on the bond is below the higher rate tax threshold, then there will be no further tax to pay.

The average gain I mention is the total gain divided by the number of years held.

The Aegon rep will not know, or be able to comment on an individual's tax situation.

dunroving

dunroving wrote: »

I've looked into this and the account is described as an "investment bond" with a bond policy number. Within the policy she is invested in units in two funds; one simply called "Ethical", consisting of UK equities and the Scottish Equitable Kames Ethical Corporate Bond fund.

The bond "current valuation" amount is listed as the same amount as the surrender value.

Nowhere within the rather limited information in her personal customer pages (i.e., login via the Aegon Web site) does it say whether this is an on-shore or off-shore bond. If withdrawals truly are tax-free that would suit her current situation perfectly but the Aegon customer service rep said withdrawals were liable for income tax. However, as per my comment re: Aviva, I truly do wonder about the accuracy of the information they are giving.

jem16 wrote: »

Withdrawals from an Investment Bond are only tax-free (or to be more precise tax-deferred) if it's 5% of the original amount invested each year. Anything else above that creates a chargeable gain.

The 5% pa withdrawals can be rolled up if not used each year.

When the Bond is finally encashed any withdrawals are added back on to calculate the overall gain to see if tax is due.

HappyHarry wrote: »

The OP may want to post again under the Savings And Investments part of the forum.



They are liable for income tax, but the person may not have to pay any. If the bond is onshore, and the person's income plus their average gain on the bond is below the higher rate tax threshold, then there will be no further tax to pay.

The average gain I mention is the total gain divided by the number of years held.

The Aegon rep will not know, or be able to comment on an individual's tax situation.

Thanks, I may post a separate thread in the Savings forum. It looks like it will be a while until the pensions changes shake out to the point where things are running more smoothly and clearly to the average person. So in the time frame my friend needs access to a small lump of cash, it looks like the bond is the route to take.

I have absolutely zero experience with "investment bonds" (which seems to mean something different from the concept of bonds and gilts within a bond fund). So maybe I can post a couple of dummy's questions and if the answers aren't simple I will start a separate thread on the Savings forum.

Even if withdrawals from the bond are taxable, it sounds like it wouldn't be treated like regular income ... so as a simple example if my friend were above the personal allowance and tool £10k out of the bond, it wouldn't be as simple as income tax of £2k (20%) of the sum withdrawn?

Her income tax affairs are pretty simple - state pension and a small income from her personal business. If she wanted an idea of how much tax she'd be due on a £10k withdrawal, is this something her accountant could easily advise her on? Or should/could Aegon themselves be able to give her an idea (I mean in terms of quantifying gains, not tax liability)?

Aside from my initial question, and being peeved at what she was told by Aviva, this bond taxation question seems like the primary problem she needs a solution to.

jem16

dunroving wrote: »

Even if withdrawals from the bond are taxable, it sounds like it wouldn't be treated like regular income ... so as a simple example if my friend were above the personal allowance and tool £10k out of the bond, it wouldn't be as simple as income tax of £2k (20%) of the sum withdrawn?

Basically 5% pays no tax. Withdrawals above 5% are taxed as normal income tax. If that person is still a basic rate taxpayer after the withdrawal has been added on, then there is no additional tax to pay as the 20% has already been paid. This assumes an onshore bond.

More info here;

http://investment-bond-shop.co.uk/investment-considerations/taxation-onshore-investment-bonds/

When was the Bond started and has she made any withdrawals already or not?

dunroving

jem16 wrote: »

Basically 5% pays no tax. Withdrawals above 5% are taxed as normal income tax. If that person is still a basic rate taxpayer after the withdrawal has been added on, then there is no additional tax to pay as the 20% has already been paid. This assumes an onshore bond.

More info here;

http://investment-bond-shop.co.uk/investment-considerations/taxation-onshore-investment-bonds/

When was the Bond started and has she made any withdrawals already or not?

I'd have to look into this, but am pretty sure she has had the bond for many years (I think it was a Scottish Widows bond and it was either switched in name only or transferred to Aegon at some point)

Pretty sure she hasn't paid anything into it in many years.

100% sure she's never taken any withdrawals.

I'll post more accurate details if I can find them out.

jem16

dunroving wrote: »

100% sure she's never taken any withdrawals.

Then she can roll up her 5% withdrawals for each year. So if she took it out 10 years ago she could withdraw 50% with no chargeable gain.

However it doesn't look like your aunt is anywhere near higher rate tax territory so I doubt it will make any difference anyway.

Was her total income ever near higher rate tax or the income limit for the higher personal allowance?

dunstonh

I'd have to look into this, but am pretty sure she has had the bond for many years (I think it was a Scottish Widows bond and it was either switched in name only or transferred to Aegon at some point)

Scottish Widows and Aegon have no link. Possible that you are thinking of Scottish Equitable. Aegon was the parent company of Scot Eq and after a period of duel name (Aegon Scottish Equitable) they dropped the Scot eq.

dunroving

jem16 wrote: »

Then she can roll up her 5% withdrawals for each year. So if she took it out 10 years ago she could withdraw 50% with no chargeable gain.

However it doesn't look like your aunt is anywhere near higher rate tax territory so I doubt it will make any difference anyway.

Was her total income ever near higher rate tax or the income limit for the higher personal allowance?

Wow, if I am understanding this correctly this would be great news for her.

Some years her income is barely above the personal allowance and (I think) other years it might even have been below the personal allowance. This includes the state pension she is receiving. I'd guesstimate her typical income from state pension plus work-related earnings most years is probably between less than £10k and less than £20k.

[p.s., She is an old friend, not an aunt. ]

jem16

dunroving wrote: »

Wow, if I am understanding this correctly this would be great news for her.

Some years her income is barely above the personal allowance and (I think) other years it might even have been below the personal allowance. This includes the state pension she is receiving. I'd guesstimate her typical income from state pension plus work-related earnings most years is probably between less than £10k and less than £20k.

I wonder why an Investment Bond was used?

[p.s., She is an old friend, not an aunt. ]

Sorry - don't know where I made that up from!