bond investment going up and down

SonOf

How will I know if it's a "tax wrapper"?

An investment bond is a tax wrapper (like ISA or pension).

I've been told that tax and fees have been taken off via St James's Place, the company it is with, although I'm not sure how that works.

SJP are one of the most expensive distribution channels going. So, you can be confident of the fees being paid.

Investment bond taxation is not as simple as that though.

Like I said, I didn't set this up but just inherited it. I know it couldn't be touched for the first 5 years but now that has passed.

Who told you 5 years? If it was assigned to you on the death of the original owner then the 5 years is from inception. Not assignment.

So should I be taking some off the top and putting elsewhere while it's riding high? Or will that make no difference overall?

1) you are getting into a wider discussion on portfolio management
2) you are potentially going to create chargeable gains.

Investment bonds have multiple ways to handle surrenders and often require financial planning to spread over multiple tax years and policy years.

JeffMason

SonOf wrote: »

Who told you 5 years? If it was assigned to you on the death of the original owner then the 5 years is from inception. Not assignment.

I inherited it midway through that 5 year period. I could take out the interest each year but not all of it without charge. I didn't take any. Yet.

JeffMason

Thank you all!

I was aware that SJP advice might be somewhat angling me to stay with them so wanted to try and make sense of it at least a little before talking to them.

But now perhaps I should ask SJP a few questions. See what they say. And then ask an independent financial advisor similar questions after that, and both before I do anything at all. I'm sure I can find a friend or family member who can advise on advisors to try, or at least ones local to them to advise who I should talk to local to me.

Thanks again!

JeffMason

I've just looked at this site:
https://www.moneyadviceservice.org.uk/en/articles/investment-bonds
And this sounds like exactly what I have.

And this section was particularly interesting:

"Although tax at 20% has already been deducted, you might have an additional income tax bill if your gains push your income over the higher or additional rate tax threshold in the year they mature.

You might be able to avoid this by using a method known as ‘top slicing’.

Top slicing works by dividing your profit over the lifetime of your bond (including withdrawals) by the number of years the bond has been held.

If the resulting figure, when added to your other income for the tax year, is below the higher-rate tax threshold, there is no extra tax to pay.

However, if the top-sliced profits still push you over the higher rate tax threshold for the year, then additional tax must be paid on the entire gain."

I've worked this out and I because my income isn't huge, this doesn't push me into the higher rate for tax. So if that's correct then that's good. I'll still check all this with an expert and about other kinds of inheritance tax etc. But I thought that was interesting and worth posting!

Malthusian

Linton wrote: »

Agreed. I had assumed that it was a recent inheritance with minimal chargeable gain but now we hear it's 5 years that could change things.

If you inherited an insurance bond the chargeable gains could be substantial depending on how long the benefactor/ess held it for and performance in that time, even if you only inherited it yesterday.

Chargeable gains on a bond which gets inherited are not extinguished on death. Unlike capital gains on unwrapped funds.

Presumably the bond had lives assured other than the owner, otherwise it would have matured on death and the OP would have received cash rather than an insurance bond.

JeffMason

But then I read this site: https://www.moneymarketing.co.uk/top-five-queries-chargeable-events/

And find this:
"The growth in the value of an investment bond and the gain realised on full encashment can be considerable if the bond has been running for many years.

There is a common misconception that it is the top-sliced gain which is added to a person’s income to determine their entitlement to personal allowances and any means-tested benefits.

But even though HMRC allows the gain to be spread over the complete number of years the bond has been in force to calculate the tax liability, they will treat the whole gain as income in the tax year in which the event occurred. This means that if a large gain is realised the person might lose some or all of their personal allowance.

So I'm now confused again as this seems to suggest the first quote I mentioned is incorrect. A financial advisor is needed to offer some clarity I think!

Malthusian

All of that is correct (albeit it is a high-level, incomplete summary rather than a manual on how to calculate chargeable gains) and I don't see that it contradicts anything that has been stated in this thread.

Taxation of insurance bonds is indeed complicated and professional advice is essential.

Voyager2002

So: it might well make sense for you to do some "top-slicing", taking out from the bond each year amounts that will be small enough for you not to face an unreasonable tax bill. Your Saint James' Place partner should advise on this. As others have pointed out, SJP are extremely expensive: substantial fees have been paid, and you should get good advice from them on 'top-slicing' without any further fees. However, they may suggest different investments with SJP for the funds that you withdraw: the fees for doing this are likely to be rather high, so please come back and check with people here before doing this.