Tax on investment bond

Sea_Shell

Thanks for your help with everything.


I've deleted my post with the figures in, as I realise they could be recognised as personal information, by those involved.

Linton

Sorry, death and  large surrenders are way beyond my experience/knowledge, I think you are may have to consult a professional.  One thing I would question is that if it was jointly owned perhaps all of it should have passed to B on A's death outside the will.  It seems questionable as to whether it can be used to pay A's beneficiaries. https://techzone.adviserzone.com/anon/public/iht-est-plan/dealing-investments-after-death
Also try https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/taxation-uk-investment-bonds/

One feature that may be relevent is: If the gain were to move someone from the basic tax band to a higher rate then HMRC will apply top slicing.  The idea is that the gain is divided by the number of years to give an average/year.  Then if that average would not put the person into the higher rate band in the current tax year no higher rate tax is charged.

[Deleted User]

Linton said:

Sorry, death and  large surrenders are way beyond my experience/knowledge, I think you are may have to consult a professional.  One thing I would question is that if it was jointly owned perhaps all of it should have passed to B on A's death outside the will.  It seems questionable as to whether it can be used to pay A's beneficiaries. https://techzone.adviserzone.com/anon/public/iht-est-plan/dealing-investments-after-death
Also try https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/taxation-uk-investment-bonds/

One feature that may be relevent is: If the gain were to move someone from the basic tax band to a higher rate then HMRC will apply top slicing.  The idea is that the gain is divided by the number of years to give an average/year.  Then if that average would not put the person into the higher rate band in the current tax year no higher rate tax is charged.

Please be aware that I am not being pedantic but one has to claim TSR - HMRC will not automatically apply it.

Sea_Shell

Linton said:

Sorry, death and  large surrenders are way beyond my experience/knowledge, I think you are may have to consult a professional.  One thing I would question is that if it was jointly owned perhaps all of it should have passed to B on A's death outside the will.  It seems questionable as to whether it can be used to pay A's beneficiaries. https://techzone.adviserzone.com/anon/public/iht-est-plan/dealing-investments-after-death
Also try https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/taxation-uk-investment-bonds/

One feature that may be relevent is: If the gain were to move someone from the basic tax band to a higher rate then HMRC will apply top slicing.  The idea is that the gain is divided by the number of years to give an average/year.  Then if that average would not put the person into the higher rate band in the current tax year no higher rate tax is charged.

B was the executor, and did not seek independent legal advice!!  This was over 5 years ago now.  

My worry is that I may end up the administrator of B's estate, or be asked to be their PoA in the meantime, and I'd rather not have any nasty surprises.

I know I don't have to deal, but it would be hard to walk away and leave others (who are elderly or unknowledgeable) to sort everything!

Jeremy535897

I suggest that you read the attached, as it will answer a lot of your questions, and others you haven't thought to ask:
https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/taxation-uk-investment-bonds/

Sea_Shell

Jeremy535897 said:

I suggest that you read the attached, as it will answer a lot of your questions, and others you haven't thought to ask:
https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/taxation-uk-investment-bonds/

Thanks for that article.  It makes (some) sense, but then it's not aimed at customers!!

The main things I've taken from it is that, at the end of each policy year, a certificate should have been issued detailing all taxable gains on amounts withdrawn (chargeable event) during that period.   

Whilst both policyholders were alive, they could attribute gains 50/50 (as that's how it was held).  HMRC should have also received a copy of these certificates, so "should" be aware of any additional tax due.   

As far as I am aware, top-slicing relief "could" have been applied for, but i'm not sure that it has.    

It's the element of any additional owed tax being "deferred" that is worrying me.   If any additional tax has not been paid, and TSR has not been applied for, could there be a large tax bill waiting in the wings, or should HMRC be all over it like a cheap suit!!!

How long do HMRC have to come after someone (or their estate) for back tax owed?

Jeremy535897

Whether there is actually any tax due on the withdrawals will depend on their other income, and the impact of top slicing relief. If HMRC carry out an investigation, and as a result something previously undeclared comes to light, normally any time limits for making elections relevant to the undeclared income are extended.

As regards the liability of personal representatives, see https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem7256

Individual beneficiaries are not protected by this.

Note also:

"3h. Assessment

“Discovery” assessment on personal representatives of a deceased person in respect of years/periods up to date of death

Time Limit

Any assessment has to be made within 4 years of the end of the year of assessment in which the taxpayer died

Legislation

TMA70/S40(1) as amended by FA08/SCH39/PARA11

But no assessment can be made for a year of assessment ending more than 6 years before the date of death, even where the assessment involves a loss of tax due to

• an offshore matter or offshore transfer, or
• the careless or deliberate behaviour of the person (or of the person’s agent while the person was still alive), or the failure of the deceased to notify chargeability to income tax or capital gains tax.

TMA70/S40(2) as amended by FA08/SCH39/PARA11"

From https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch56100

Sea_Shell

I think I need to try and speak to B about the situation, and ascertain what they've done about tax, if any?   Although they are not the easiest person to deal with.   (My husband thinks I should stay out of it all!!)

Thanks for all your help guys, it really has the potential to be a minefield, and it's not one I relish having to cross!!!