Investment bond and tax situation.

traceyaj

My husband took out 2 investment bonds with the TSB around 1987. They were for £1000 and £2000 respectively. The bonds are now managed by Scottish Widows. Their  joint worth is now approximately £20,000. We really need to cash these in and use the money to help our two grown up children in setting up their own homes. I now understand that my husband will be taxed on the profit from this. Has anyone any advice on the best way to go about cashing them in. Obviously we don't to pay more tax than we have to. 

dunstonh

I now understand that my husband will be taxed on the profit from this.

Is that because he is a higher rate taxpayer or the gains would make him one? 

 Has anyone any advice on the best way to go about cashing them in. 

You can download a surrender form from the SW website.

traceyaj

Thanks dunstonh, he is not a higher rate taxpayer, nor would the gains make him one.  

dunstonh

traceyaj said:

Thanks dunstonh, he is not a higher rate taxpayer, nor would the gains make him one.  

In which case there is no additional tax.   onshore bonds are treated as having already paid basic rate tax.

traceyaj

Thanks again dunstonh. The Scottish Widows handbook is very confusing on this and of no help. We will not be withdrawing enough to attract any capital gains tax as we will withdraw £4000 for now, but out of interest could CGT be payable on an investment bond  if the figures were high enough. 

Linton

traceyaj said:

Thanks again dunstonh. The Scottish Widows handbook is very confusing on this and of no help. We will not be withdrawing enough to attract any capital gains tax as we will withdraw £4000 for now, but out of interest could CGT be payable on an investment bond  if the figures were high enough. 

Investment bonds come under Income Tax, not CGT, which is why large one-off cash-ins could cause tax problems for higher rate tax payers.   Most basic rate tax payers should be OK especially if the bonds have been held for a long time, but this is a somewhat complex area which you need not worry about from the info you have told us.