Investment Bond "Top-slice" timing

ArmyDilllo

Last year I asked a question about a Bond I have with L&G ("L&G 'With Profits' Investment Bond "Zombie" 15th Jun 15 at 12:39 PM").

I have a spin-off question from it, so I thought I'd start a new thread.
Apologies if my choice is deemed incorrect (happy for it to be merged by mod's, if appropriate).

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5% Top-slice (timing).
I started the bond with £25k in 2003 and put a further £30k into it in 2014, making a total investment of £55k.

I was assumed, following advice from my earlier thread, that I would be able to withdraw 5% of the original £25k, tax-free per annum(cumulatively) for each year it's been invested.
Then I would be able to withdraw a further 5% of the subsequent £30k investment, tax-free per annum(cumulatively) for each year that's been invested.

However somebody made an off-the-cuff remark to me about these bonds which I had dismissed as 'daft', but am now becoming more and more interested in (IF TRUE).

Since hearing it I have had occasion to query it with seven or eight different advisors and accountants and tax-specialists who have all reiterated that the information is correct.
The information I was given is that I could withdraw 5% of the total £55k investment tax-free per annum (cumulatively) for each year from the date of the original £25k investment, even though £30k of the total was only invested two years ago.

Despite having so many qualified people assuring me it is so, I find it extremely difficult to accept because it just doesn't seem like the kind of thing our friendly neighbourhood tax-man would let slide.

If it is genuine, it would significantly alter my approach to my business; future investments; and retirement plans, so I'm looking to MSEF for some additional assurance/understanding.

Thanks in advance.

ArmyDilllo

Any thoughts on this please?

Malthusian

Sorry, this is an uncommon scenario and I don't know the answer to that particular question. I certainly don't know anything that contradicts what you've been told.

I would just point out that the 5% withdrawals are not tax free, but tax-deferred. When you eventually encash the bond (including on the death of the last life assured) the total withdrawals will be added to the encashment proceeds to work out the gain on the bond and any liability to further tax. So the taxman is not letting anything slide one way or the other.

The 5% withdrawal allowance is a completely different thing from "top-slicing". Top-slicing is a relief which means that for certain calculations (but not all) a chargeable gain can be divided by the number of years you've held the bond for the purposes of working out further tax liability.

HappyHarry

The information I was given is that I could withdraw 5% of the total £55k investment tax-free per annum (cumulatively) for each year from the date of the original £25k investment, even though £30k of the total was only invested two years ago.

I'm going to stick my neck out here and say you have been given incorrect information.

HMRC imply that you can only claim the 5% for the periods that each sum has been invested. See here ...
http://www.hmrc.gov.uk/manuals/iptm/iptm7620.htm

Prudential offer some guidance that says ...

"Where a policy is topped-up or incremented within that same contract then that amount will trigger its own 5% allowance starting in the insurance year in which the increment occurs."
http://www.pruadviser.co.uk/content/knowledge/technical-centre/taxation_uk_investment_bonds/#2


Most investment bonds do not allow top ups. (Including Prudential, who provide a new bond each time you try to make a top up).

I would be very interested to see if any of the advisers / accountants you have spoken to have any evidence that supports their position.

ArmyDilllo

Thanks guys.

Sorry for delay in my response (Built a new PC over the weekend and lost my links).


@ Malthusian
Yes, sorry.
I may have not made my concerns clear due to information in an earlier thread;
L&G 'With Profits' Investment Bond "Zombie".
This dealt with the 5% issue and the more complex issue of Top-Slicing and avoiding tax by incremental withdrawals over time.


@ HappyHarry
L&G allowed (before they Zombie'd ) up to five 'top-ups' in their bond.
However these are considered as new bonds, just distributed across the same bond numbers as the original investment.

I felt I was being given incorrect advice as well.
I had to query though because so many people more qualified than I were suggesting this definition I thought maybe I'd misunderstood something.

It's actually nice to hear someone else also thinks it's mad.
I hadn't thought to ask any of them for their point of reference but, if it comes up again, I shall.


Thanks again for replying guys.