Friends Life Lifespan Plus Plan

wjr4

Has anyone come across one of these recently? Now with Aviva. I'm trying to figure out whether there are tax charges upon encashment. It is a Whole of Life plan but mentions income tax - is it an investment bond?

dunstonh

Whole of life plans are non-qualifying and subject to chargeable gains calculation. The onshore versions are treated as basic rate tax paid as long as the gains keep you in the basic rate tax band.

bostonerimus

I'd be interested to know how common Whole Life Insurance is in the UK. In the US many people see it as expensive and use Term Life Insurance to cover them when they have dependents and then drop life insurance and invest the premiums elsewhere.

dunstonh

In the UK, life assurance is also a tax wrapper. So, it is used by certain groups to reduce their tax liability. It is in decline as ISAs and pensions are more favourable and since the introduction of the dividend tax allowance, unwrapped holdings are better for smaller investors. It still plays a role in trusts and larger investments where higher rate tax can be an issue.

bostonerimus

dunstonh wrote: »

In the UK, life assurance is also a tax wrapper. So, it is used by certain groups to reduce their tax liability. It is in decline as ISAs and pensions are more favourable and since the introduction of the dividend tax allowance, unwrapped holdings are better for smaller investors. It still plays a role in trusts and larger investments where higher rate tax can be an issue.

It's similar in the US, although Whole Life is still aggressively sold as a tax advantaged way to save because the limits on that are generally lower than in the UK. The zeitgeist is that it's a bad deal for most people and only becomes worthwhile for the rich and their estate planning. As you point out pensions, ISAs (ROTHs in the US) and unwrapped tax free allowances should be used first.