Pru with profits bond

ps2659

Me and my wife have joint name with profits policies with the pru (I think it was called the prudence bond) in 1999 we placed a lump sum investment, whilst this has done pretty well over the years we are now looking to draw down some income from this bond, I seem to recall when we invested that you are allowed to withdraw 5% per year from the bond with out any tax liability, I would like to know if that's still the case and if the 5% is of the original investment or todays value. We are both taxpayers but not high rate.
Thanks in advance for any replies.

Terry98

A similar question answered here https://forums.moneysavingexpert.com/discussion/5498258

xylophone

http://www.pru.co.uk/existing-customers/products/prudence-bond/

Malthusian

You can withdraw up to 5% of the original investment each year without a "chargeable gain" occurring. This allowance accumulates if not used (up to 100%) so depending on the exact opening date you should be able to withdraw at least 80% of the original investment, if you have made no withdrawals previously at all.

The withdrawals will eventually be added back to the bond's value when you cash it in, die or make a withdrawal that exceeds your accumulated allowance, so these withdrawals are tax-deferred, not tax-free.

If you encashed the bond in full or withdrew more than your allowance, then to put it very briefly, you would only pay tax if the difference between the current value plus withdrawals minus the original investment, and divided by the total number of years you have held the bond, when split between you and added to your other income, is enough to take you into the higher rate tax bracket. Or if the total gain (without dividing by years held) added to your income takes you above certain thresholds such as for the age-related allowance. Basic rate income tax is deemed to have already been paid within the bond.

ps2659

Malthusian wrote: »

You can withdraw up to 5% of the original investment each year without a "chargeable gain" occurring. This allowance accumulates if not used (up to 100%) so depending on the exact opening date you should be able to withdraw at least 80% of the original investment, if you have made no withdrawals previously at all.

The withdrawals will eventually be added back to the bond's value when you cash it in, die or make a withdrawal that exceeds your accumulated allowance, so these withdrawals are tax-deferred, not tax-free.

If you encashed the bond in full or withdrew more than your allowance, then to put it very briefly, you would only pay tax if the difference between the current value plus withdrawals minus the original investment, and divided by the total number of years you have held the bond, when split between you and added to your other income, is enough to take you into the higher rate tax bracket. Or if the total gain (without dividing by years held) added to your income takes you above certain thresholds such as for the age-related allowance. Basic rate income tax is deemed to have already been paid within the bond.

We placed £20000.00 in this bond on the 6th August 1999 in joint names, it is now worth just over £44000.00, we are both basic rate tax payers with a gross income of £21000.00 each therefore,would we be able to close the bond and withdraw all the funds without any extra tax liability.?

dunstonh

Pru bonds from that era are great little investments. You cant get them on such good terms any more. This makes these old ones worth keeping if you can.

Based on what has been written, there would be no further tax liability.

ps2659

dunstonh wrote: »

Pru bonds from that era are great little investments. You cant get them on such good terms any more. This makes these old ones worth keeping if you can.

Based on what has been written, there would be no further tax liability.

Thanks dunstonh we may keep hold of it a little longer, you are saying on the info I stated earlier in regard to our income we would be able to draw all funds out with no tax to pay at all, just trying to get clarity.

xylophone

http://www.pru.co.uk/pdf/INVS0002.pdf

Malthusian

ps2659 wrote: »

you are saying on the info I stated earlier in regard to our income we would be able to draw all funds out with no tax to pay at all, just trying to get clarity.

Yes.

(£44,000 - £20,000) / 16 = £1,500, split between you is £750 each, added to your other income you are well below the higher rate threshold of £43,000.

This assumes you have not taken any withdrawals in the past.