Tax on matured endowment?

dunstonh

Remember that you can always make a pension contribution to bring your income down. It is common financial planning to make pension contributions to offset the cost of a chargeable gain to avoid higher rate tax.

Juliet68

Yes I may finish this tax year being slightly into the higher tax band.

Juliet68

If I finish the year in the higher tax band I would pay 20% of the gain value / no of years which makes the yearly gain about £700 so the tax would be £140 as I understood it. (Then I will potentially be claiming that £140 from Aviva as I think they caused the policy to be non qualifying)

BoGoF

Fraid not......if you are higher rate before the addition of the gain there is no top slicing relief. You would pay additional 20% on the total gain.

dunstonh

Top slicing only works if you remain as a basic rate taxpayer once the slice is added. If that slice takes you into higher rate, then its added to the whole of the gain that falls within the higher rate band.

If you are looking at just £700 into the higher rate, then a pension contribution looks like a decent option. A bit of higher rate tax relief and avoiding higher rate on the gain.

Juliet68

Is there any chance, do you think , that my policy might have turned back into a qualifying policy as it was 20 years since the change which I think affected it?

Juliet68

Am I right in thinking that if I am a higher tax rate payer at the end of the the tax year (and therefore not eligible for top slice relief), the tax on the gain will be 20% because the gain certificate says tax at 20% has already been paid?

And as I will be taxed at work through paye this won't be affected?

Thank you very much for all your help so far it is appreciated.

TrickyDicky101

The marginal rate you pay will be 20% of the gross gain (so not the net amount after the deemed 20% already paid).

Your PAYE won't be impacted by this - you need to complete a tax return with these figures entered.

Juliet68

Thank you. So if the gain was £17440 it will be 20% of that so £3488. I'm fully expecting Aviva to be paying the tax (as I have s letter from 20yrs ago saying they will pay income tax due from the change) though they've not come back to me yet with a reason why it turned non qualifying.

Is a tax return the same as a self assessment return? Never done any sort of tax return before.

TrickyDicky101

Well done you for keeping that letter from Aviva.

If you don't already complete self assessment for HMRC it would be worthwhile calling their helpline to explain that you will need to complete one for the current tax year. It's a bit of a faff - and you'll no doubt be told to complete ones for the following few years too - but better to get it done and dusted.