Investment surrender and Tax

morgan09

Good evening all,

My dad was made redundant in the early '90's.
He started an investment with a company for himself and my mum.
My dad passed away in 1998 at 65. My mum went to see a financial adviser at her building society. It was decided that she would close the original investment and open a new one with me as a joint account. She thought this was a good idea at the time as we had just lost my dad.

The investment plan is with L&G and was opened in January 1999.
The amount invested was £90,000 and consists of 10 policies.
My mum was taking regular monthly payments of £290.00 per calendar month, until she passed away January 2016.

I have continued to receive these payments. I don't earn much so I don't go over my tax allowance.

Now I wanted to free up some money so I called L&G last Monday, to be told that I would have to pay tax depending if I earn at the higher tax rate. Same if I was to surrender the whole value, which the surrender amount then was £74,000.

The Lady at L&G was trying to explain it to me and said that since 1999 there had been a total of £76,000 paid out. I explained to her that, that was my money to my mum, although I was joint account holder I never saw the money. The lady could not tell me if I would only pay tax since I have been on my own on it or whether I would be responsible since the beginning. As far as I'm concerned I inherited it, but because my name was on there I didn't.

I was told to find a financial adviser through Unbiased, Which I did, and they came on Friday.

Now straight away they were trying to sell me a will, funeral and whatever else. I have an idea what I want to do with the money with regards to continuing saving but in ISA's etc, and they more or less said the same thing. But could not answer my question regarding my original request for financial advice. First, it was no you would not need to pay tax, then she seemed to think I would, but couldn't advise, apart from telling me what she would charge to find out, and then how much the wills would be and the funeral cover etc. I initially agreed, but I contacted them Saturday morning informing them I was changing my mind, after a sleepless night worrying about it. I'm still worried about it now. They were okay that I cancelled the agreement, but then this morning they have emailed me stating that I am not a taxpayer so why am I paying over £12500 in tax a year to the government via my bond. Then another email two minutes later saying it may not be £12500 but I AM paying tax, which I do not need to do. I haven't replied.

Now my mind is going into overdrive with the whole thing, so any advice would be welcome regarding tax etc and me being liable from 1999 or 2016.

Many thanks and sorry it's so long, but needed to explain from the beginning.

Voyager2002

Firstly: make it clear to that financial advisor that you do not want their services and will not be paying them anything. I do hope that you have not signed any agreements with them.


In respect of tax: you should be able to sort things out with HMRC, but if that does not work then you would see an accountant rather than an FA. My view of your situation, and I am very out-of-date but checked something similar carefully some years ago: when you have a jointly-owned asset such as a house or investment bond that produces an income, it is up to the joint owners to decide how the income is shared and to tell HMRC. It is fine if one of the joint owners gets all of the income, but once the choice has been made it cannot be changed unless there is some reason for the change. So they should have no problem at all that your late mother received all of the income until her death, and you have only received the income since then.

dunstonh

They were okay that I cancelled the agreement, but then this morning they have emailed me stating that I am not a taxpayer so why am I paying over £12500 in tax a year to the government via my bond. Then another email two minutes later saying it may not be £12500 but I AM paying tax, which I do not need to do. I haven't replied.

If it is an onsure bond then it will be paying tax internally. Generally deemed to be equivalent of 20% basic rate except internally the insurers can use reliefs to reduce that. The actual figure is unknown and can depend on the asset mix. It could be as low as 13% or as high as 18%. However, for tax purposes, it is treated as basic rate tax paid (which is 20%).

The changes to the dividend allowance and tax credits made unwrapped holdings more suitable for most people. So, when an adviser comes across someone with an onshore bond nowadays, the aim is to consider whether surrender or partial surrender or use of the deferred allowance would be suitable to get the money out into a more tax efficient wrapper.

Now my mind is going into overdrive with the whole thing, so any advice would be welcome regarding tax etc and me being liable from 1999 or 2016.

How is the bond set up? Are you and your mother jointly named as policyholders? Are you both named as lives assured? (the latter doesnt really matter but I just want to make sure you are not looking at lives assured thinking that it makes you an owner. It could be that you and your mum are the lives assured but only she is the owner. Or any other combination. This affects the tax potentially (although the possibility to assign the policy could reduce the impact)

morgan09

dunstonh wrote: »

How is the bond set up? Are you and your mother jointly named as policyholders? Are you both named as lives assured? (the latter doesnt really matter but I just want to make sure you are not looking at lives assured thinking that it makes you an owner. It could be that you and your mum are the lives assured but only she is the owner. Or any other combination. This affects the tax potentially (although the possibility to assign the policy could reduce the impact)

My mum passed away January 2016. Until then we were joint holders.

Many thanks