Investment Bond after 20 years

moley166

I invested in a single premium investment bond twenty years ago and have taken 5% of the original invested amount annually for 20 years without paying tax on the withdrawn amount, which is a legal procedure. I am used to the annual 5% withdrawn amount as part of my income and will need to continue to receive this amount after the 20 year period is ended. I would welcome advice on how to achieve this tax efficiently without cashing in the whole of the Bond. Also any experience of dealing with a 'maturing' Bond after 20 years would be most welcome. Thanks in advance.

HappyHarry

moley166 wrote: »

I invested in a single premium investment bond twenty years ago and have taken 5% of the original invested amount annually for 20 years without paying tax on the withdrawn amount, which is a legal procedure. I am used to the annual 5% withdrawn amount as part of my income and will need to continue to receive this amount after the 20 year period is ended. I would welcome advice on how to achieve this tax efficiently without cashing in the whole of the Bond. Also any experience of dealing with a 'maturing' Bond after 20 years would be most welcome. Thanks in advance.

You can continue to make the withdrawals, but any further income you take is taxable (under income tax).

If this is an 'onshore bond', then the bond has paid the equivalent of basic rate tax already, so you will only need to pay further tax if you are a higher rate taxpayer, or if the withdrawal makes you a higher rate taxpayer.

dunstonh

Also any experience of dealing with a 'maturing' Bond after 20 years would be most welcome.

If it is maturing then that would make it a single premium endowment. So, tax wont be an issue going forward as it would be a qualifying plan. If it is not maturing but is open ended then that makes it a single premium whole of life assurance. The taxation will be different as that would make it a non-qualifying plan.

xylophone

If the OP has withdrawn 5% of the original investment for 20 years, then he has withdrawn all of the original capital, so what remains is growth?

If this is an on shore bond and it matures, will there be a chargeable event for CGT purposes?

If it is (HMRC definition)
"a unit-linked, single premium whole of life or endowment policy providing minimal guaranteed death benefits, and often capable of surrender without penalty, particularly later in the term. An investment rather than insurance in the general sense."


then it is not a "qualifying policy" for UK tax purposes?



OP, is there an explanatory booklet with your paperwork detailing the provider of the bond, the nature of the bond, how it is taxed, what happens on maturity etc?

A relative has some "bonds" which sound similar to this - the 5% rule was certainly within them and one is being surrendered - a chargeable event (CGT) statement is being produced.

Terry98

This is Prudential's advice on tax on their Investment Bond http://www.pru.co.uk/pdf/INVS0002.pdf

I would have thought they could give basic tax advise instead of referring their client to an FA. If the OP is a basic rate taxpayer I would have thought they would not be liable to any tax if they continue drawing 5% a year but I could be wrong.

dunstonh

I would have thought they could give basic tax advise instead of referring their client to an FA.

Not unless they wish to fall foul of the FCA rules on advice. Withdrawal process on investment bonds is a high risk area and I doubt any insurer would be willing to give advice and take on that liability without charge. Especially as the methods can result in no tax by one method and hundreds of thousands by another. There is a case in the courts currently where someone picked the wrong method and it will bankrupt them.

The links being posted are for single premium whole of life assurance plans. The OPs original post that mentions maturity suggests it is a single premium endowment as whole of life do not mature (both fall under the investment bond classification). Although it could just be mis-wording by the OP by using the term "maturity" out of context. So, clarification would hope.

Terry98

dunstonh wrote: »

Withdrawal process on investment bonds is a high risk area and I doubt any insurer would be willing to give advice and take on that liability without charge. Especially as the methods can result in no tax by one method and hundreds of thousands by another. There is a case in the courts currently where someone picked the wrong method and it will bankrupt them.

It does seem high risk if the investor pays tax at more than the basic rate. It is also risky if a withdrawal takes a basic rate taxpayer into a higher tax bracket.

No doubt higher rate taxpayers can pay for financial advice but surely the provider could give basic tax advice to 'ordinary' investors?

dunstonh

No doubt higher rate taxpayers can pay for financial advice but surely the provider could give basic tax advice to 'ordinary' investors?

A higher rate taxpayer can be an "ordinary" investor. It doesnt take a lot of earnings to be in higher rate tax nowadays.

Advice is advice. Whether the person is higher rate, basic rate or non rate. If they give advice, they take on advice liability. They also need the regulatory permissions and structures in place to give advice. You cant go half way house and give advice and then claim it wasnt advice.

What you say would be nice but we are not living in the 80s or earlier. The compensation culture today means we cant be nice anymore. That said, you do tend to find a number of insurers have a basic summary with a few examples. Not advice but examples. That can be useful if you fit an example.

Pincher

It's like surgeons making you sign waiver forms.

Of course they can offer free advice, provided you promise not to sue them if you lose money. Like:

"Why didn't you tell me I could have sold and paid higher rate CGT, at 20%, instead of paying 32.5% dividend tax!? I'm gonna sue you."