Scottish Widows Flexible Options Bond withdrawls

weezie7

I have POA for an elderly relative in a nursing home. I now need to access the above to top up paying for nursing home fees (+£1200 a month). I can withdraw but don't completely understand the two options, which are: Partial encashment or Full encashment. Which is the better option - any ideas/ suggestions please?

Dox

You don't say how much is in the bond or how much you want to withdraw (i.e. a month at a time, a lump sum to potentially cover a year's top up fees, etc). You could withdraw the lot but do you have a better place to invest it? Do you know what the charges are if you withdraw regularly as opposed to once a year? If not, Scottish Widows will be able to tell you.

dunstonh

Which is the better option - any ideas/ suggestions please?

It will depend on the individual tax position involved.  

There are more than 2 methods.  Surrender of policies (often known as policy segments) or a withdrawal.    Or a combination of the two.

Surrendering policy segments is often the post option if you are drawing more than small amount.   If a plan had 100 policies and you surrendered 10 of them then the tax calculation is only worked out on the 10 policies surrendered.   Not the other 90.  So, it can be controlled over multiple tax years if required.

A withdrawal uses part of the 5% deferral allowance.    A tax calculation only occurs if you exceed 5% of the original investment amount.   Any unused allowance from earlier years carry over.  So, 10 years with no withdrawals would give you 50% of the original investment without triggering a tax calculation at that point.   However, the withdrawals will be taken into account later on when surrender occurs.

Do you know what the charges are if you withdraw regularly as opposed to once a year? If not, Scottish Widows will be able to tell you.

Bonds dont have charges on that basis.  So, whether it is ad-hoc withdrawals, regular withdrawals or partial/full surrenders it wont make any difference to charges.   Tax is the key thing to be aware of here and whether its better to address it this year or have it deferred to a later year.

weezie7

Thanks for the replies. 
Not as simple as I thought!
The relative is a taxpayer currently, my plan is to withdraw £3600 (3 months top up NH fees), every 4 months. SW tell me I cannot do a regular monthly withdrawl, and the 5% withdrawl (original investment £120k) that they can do, does not cover her fees, so only option is do withdraw more, but less often. Over a 12 month period it will be £14,400. 
I don't understandd partial and full encashment, what des that mean?

Dox

weezie7 said:

 
I don't understandd partial and full encashment, what des that mean?

Partial means you cash in part of the bond, full encasement means you cash in the whole lot. 

dunstonh

The relative is a taxpayer currently, my plan is to withdraw £3600 (3 months top up NH fees), every 4 months. SW tell me I cannot do a regular monthly withdrawl, and the 5% withdrawl (original investment £120k) that they can do, does not cover her fees, so only option is do withdraw more, but less often. Over a 12 month period it will be £14,400. 

its probably likely that a surrender of policy segments once a year is going to be best in this scenario.  With the figure required, then as long as she is not close to being a higher rate taxpayer, then there would not be further tax to pay.    (gain is added to income.  If still in the basic rate band then no further tax.  If it takes it into the higher rate band then top slicing relief can be applied (divide the gain by the complete number of policy years since the last chargeable event - if none then inception - if that figure is added to income and she does not go into higher rate then there is no further tax to pay.  (that is the quick and dirty method - there is more to it if the gains go to higher rate)

Do you know how many policy segments there were?  

What the current value  is (you have already mentioned original investment)? That will give us an idea of the sort of gain you are looking at and whether tax is going to be an issue or not.

weezie7

Okay, Dunstonh - how do I find out how many 'policy segments' there are please? I have had a look through the paperwork I have and can't see it.
The value of the fund as at July 2020 was £165,634. If it helps is a 'Cautious Solution' Fund.
Another basic question - relatives tax code is £296L (assume that means their 'earnings' are about £29k), they pay tax, so am I right in thinking that they could 'earn' another 20k, or so, before being taken into a higher tax bracket of £50k? You say 'Its probably likely that a surrender of policy segments once a year is going to be best in this scenario'. Why - is it purely from charges perspective etc when I withdraw? 
Many thanks so far!

xylophone

https://adviser.scottishwidows.co.uk/literature-library.html?filter=&q=+Flexible+Options+bond
I wonder would you find more information in the literature available above?

Another basic question - relatives tax code is £296L (assume that means their 'earnings' are about £29k), 

As PoA, presumably you have full  details of the donor's income  and how the tax code has been arrived at?

dunstonh

Okay, Dunstonh - how do I find out how many 'policy segments' there are please? I have had a look through the paperwork I have and can't see it.

Normally its an addition to the end of the policy number. e.g. policy number-001-100.  It will also stated on the policy schedule.  All else fails, SW will give you the number.

Another basic question - relatives tax code is £296L (assume that means their 'earnings' are about £29k),

The tax code of 296L means they can earn £2960 a year without being taxed.    It is not an indication of income level.  Someone earning £15,000 or £50,000 could have that tax code.

You say 'Its probably likely that a surrender of policy segments once a year is going to be best in this scenario'. Why - is it purely from charges perspective etc when I withdraw? 

Charges are irrelevant here.   Its a paperwork exercise and you don't want to be doing it often. 

weezie7

Thank you both Dunstonh and Xylophone. Relatives 'earnings' amount to £22k per annum (Private pension and state pension only), so room to withdraw £14k per year to pay for NH fees, without going into next tax bracket.
Bond Policy Schedule found and are 1-20, so I assume 20 segments, originally £6k each. Don't understand this, if I do a 'partial encahsment' is that some of the segments being 'closed' or what? Many thanks

dunstonh

With 20 policies (segments) you surrender enough segments each year to raise the money.      Only the gain on each segment is considered.  Not the whole policy.  So, £120k/20 = £6000 per segment.  Current value of £165,634/20 = £8281.70.  So, the gain per policy segment is £2281.70.
To raise the money you are after for a year, you surrender 2 segments which will give you over £16,500 and a gain before top slicing of £4563.  As the £4563 is within her basic rate band, you dont need to worry about top slicing and no further tax will be paid.    Repeat at 2 segments per tax year thereafter. (ideally keep at 2 segments per policy year as well.