Tax on matured endowment?

Juliet68

My endowment policy matured a week ago and Aviva have sent me a Chargeable Event Certificate (and have told HMRC) The gain I made is high enough for me to go into the 40% tax band this year so I think I have to pay income tax (the gain was £17k).

However, I thought the endowment policy was a qualifying one (according to the criteria on the HMRC website) as I had it for 25 years, paid monthly premiums and didn't pay more than £3600 in premiums in any given year and therefore not subject to income tax.

I can't ring Aviva about it till Monday but I am wondering if I am misunderstanding the criteria or why Aviva may think it's not a qualifying policy (or have just made a mistake).

Any advice greatfully received.

dimbo61

http://www.thisismoney.co.uk/money/experts/article-3160638/Will-pay-tax-endowment-policy-maturing-soon.html

https://www.theguardian.com/money/2012/apr/18/failing-endowment-taxed

https://www.taxation.co.uk/Articles/2015/11/17/333973/readers-forum-endowment-policy

http://www.financial-ombudsman.org.uk/publications/technical_notes/endowments-savings-plans-charges.html

https://www.royallondon.com/financialguidance/guides/investments/endowment-plans-explained/

Juliet68

Thank you. All the links and the HMRC confirm what I think that it is tax free. So I do not understand why Aviva think it is subject to tax.
Do HMRC have details of the endowment policy (it has an inland revenue ref on it) and would they be able to confirm that I don't have to pay tax, do you think?

dunstonh

qualifying plan will not be subject to any further tax on maturity. Non-qualifying plans could potentially.

Even if its non-qualifying, there is a good chance that after top slcing relief, you would not be a higher rate taxpayer and would have no further tax to pay.

Juliet68

Thank you. Am I right in thinking that endowment policies are usually a qualifying policy? I know I am being really impatient as I will be ringing Aviva on mon morning but if they have issued me with a chargeable event certificate do they not think the policy is non qualifying?

TrickyDicky101

I don't know whether this is the case but it is possibly that Aviva is issuing the CE certificate by default (ie they do this for all endowment maturities whether qualifying or non-qualifying).

This is because it isn't up to them to determine your tax liability (that's your job!).

Then it is incumbent upon you to decide whether you have any further tax liability (which, assuming it is a qualifying policy and you took the policy out and have held it ever since, there shouldn't be).

Aviva should be able to confirm whether they do issue CEs for all endowment maturities on their books - they should also be able to answer (as a matter of fact, not opinion) whether or not the policy was qualifying when it was issued.

EDIT: to add, I would be very obliged if you could update the thread with your findings when you speak to Aviva!

Juliet68

I spoke to Aviva today and they told me my policy was a non qualifying one. They were surprised about this and and are investigating and will let me know what event caused it to turn into a non qualifying one. As I kept it for the whole term, paid every payment they requested and didn't go over the £3600 limit in a year I don't see that I have done anything.

They said they may need to speak to HMRC about it which is why they have to allow 2 weeks.

dunstonh

Probably still wont be an issue after top slicing relief is applied. If it is, does your spouse, if you have one, earn less than you? (assignment is possible if you catch it before maturity).

Did you ever amend the policy in any way? That resets the qualifying trigger. Although most providers wont allow amendments if the plan does not have enough time to re-qualify before maturity.

TrickyDicky101

Who did you originally take the policy out with? Given Aviva has, over the years, acquired or merged with many other life companies it is *possible* that the non-qualifying status could simply be the result of an error.

Details of the policy will be held on the company's policy administration system (PAS) and it may well be as simple as a flag or checkbox value indicating qualifying/non-qualifying.

It is therefore possible that either it was set up incorrectly originally or in the mergers/acquisitions the transition from old to new PAS has resulted in a flag change (in error).

This would not necessarily be a surprise given the age of this policy (ie 25 years old) as data (such as qual/non-qual) would have been held differently on legacy PAS compared to PAS today.

Or it could genuinely be a non-qualifying policy...

Juliet68

It was taken out with Norwich union (and think at one stage was CGU?)
Norwich union amended the policy after 5 years when they realised that the end date of the endowment was 3 months after the date of the mortgage (as they didn't start taking the premiums on time). But it still had 20 years to run and they amended it as it was their error.

I don't have a spouse. I am quite close to the top of the basic rate band. Can I only do top slicing if I am a basic tax payer as there is a chance I will stray into the higher rate.

Juliet68

Having read the HMRC document on qualifying policies I am sure it meets the criteria to qualify.