Tax implications on cashed in bond

MOSHPIT22

My Pru bond has recently taken a hard knock due to the financial effects of Covid 19 & i am wondering what kind of tax implications there would be if i cashed it in.
I am a pensioner on a company pension of £20K p/annum & the Bond is worth £295K. I am thinking of cashing it all in, due to the bleak financial future

grumiofoundation

https://www.gov.uk/tax-sell-shares

MOSHPIT22

The gains on the bond have been relatively modest on the term i have held it (3 Years) and income was taxed at source, it,s the effects of tax on the original capital invested, should i decide to pull it. No info is forthcoming from my financial adviser, as he has  totally gone into hiding

Richard_DandR

This might explain the tax treatment. https://www.pru.co.uk/pdf/INVS0002.pdf

Linton

Assuming it's an investment bond the tax is somewhat complex.  Yes, basic rate tax is already paid by the bond but if you cash it in the investment gains are taxed as income which could put you into the higher rate tax band. You do have the option of "top slicing" whereby the gains are spread over the number of years you have held the bond which can help.

I suggest you think very carefully before cashing it all in.  How much has the value fallen by?  Have you checked very recently? Markets have risen significantly in the past month now that "green shoots" have been detected.  Some investments are back at around the level they were a year ago. If you do cash it in what will you do with the cash?  If you just leave it as cash you are likely to lose out significantly to inflation in the medium/long term.  For the amount of money and your apparent lack of experience I would see professional advice as essential before you do anything drastic.

The sort of falls which have been seen since the start of the epidemic have not been very unusual and much larger ones occured in the not too distant past. Volatility is part and parcel of investing.  Without it you would not get the long term benefits.

dunstonh

My Pru bond has recently taken a hard knock due to the financial effects of Covid 19 & i am wondering what kind of tax implications there would be if i cashed it in.

If the chargeable gain takes you into the higher rate band you will be subject to higher rate tax difference. With that figure, you would have your personal savings allowance reduced and possibly lose your personal allowance.

I would also question whether the pru bond has actually dropped by the level you are suggesting.

The Prufund cautious is only down 5.83% over the last 3 months.  The prufund growth is up 1.26% over 3 months.   So, its unlikely that it has taken a hard knock as the losses are well within the typical tolerance you expect to see on short term events.

 am thinking of cashing it all in, due to the bleak financial future

Why would you want to surrender it because of a relatively short term drop (that is only the third biggest in the last 20 years) that has already recovered much of the losses and is probably not far off where it was at some point in 2019?  Markets are already up 20% from their low point as the belief is that things are not going to be as bad as initially thought.

The drop due to CV is only the third biggest drop in the last 20 years.   Drops like this are pretty regular.  Financial crisis occur on an average of every 7 years.  Who and where is impacted varies each time and the reasons vary.  However, these sorts of events from a financial point of view do occur on a pretty regular basis.       So, nothing has really changed.

Albermarle

due to the bleak financial future

I think everybody expects that the next year or two will not be that rosy economically and some companies will go under and probably there will be higher taxes on the way . Plus no doubt more periods of volatility in the markets. However longer term there is  reason to think there will be a recovery.

As already said financial markets are not down as much as during some past downturns , mainly because they tend to look at future prospects as much as the here and now,