Chargeable Event Certificate - Help needed please

fuelcrusher

Hello.

So my Mother, 69 years old. Has told me she 'surrendered' a policy with Scottish Widows. The amount returned was £63,877. She received a Chargeable event certificate which states amount of gain: £32,206.

Not even knowing these things existed I initially thought that she'd therefore have to pay tax on the £32k however a bit of googling has given me some hope.

The certificate states:
Income tax, number of years 15, Amount of gain rounded down £32,206
Assignment details, Treated as paid Y, Amount of tax treated as paid rounded up £6,442

So. does this mean that she does not have to pay the 6,442 tax? Gov website states:

(1)An individual or trustees who are liable for tax on an amount under this Chapter are treated as having paid income tax at the lower rate on that amount.

(2)The income tax treated as paid under subsection (1) is not repayable.

My Mother says she currently receives around £1500 a month in her bank from an NHS pension, my late Fathers pension and the state pension. She says she does pay some income tax.

Without having full access to her exact numbers just yet I think the £32,306 may have just pushed her into higher rate tax band. I think she could just make a payment into a Sipp to eliminate this but then I read about 'top rate slicing' which I couldn't grasp, so it may not be necessary.

So if anyone is familiar with this part of the tax code any thoughts would be gratefully received.

Paul.

Jeremy535897

The gain of £32,206 is treated as income on which basic rate tax has been paid. Consequently, all your mother needs to consider is higher rate tax, and top slicing relief should eliminate that risk if £32,206 would only have just got her into the higher rate.

[Deleted User]

Here is an example if you wish to understand better. 

Basically you work out the average gain on the policy which, in this case, is 32206/15 or 2217. Add this to her annual income and she is well below the higher rate threshold. The claim would eliminate any higher rate tax - if there was any! Is her income 18000 per annum before tax (in which case there is no higher rate liability and no need to claim TSR) or after tax (when there would be)?

The basic rate tax, already paid, is not reclaimable.

https://www.rl360adviser.com/generic/downloads/tech073-top-slicing-relief.pdf

fuelcrusher

Thanks for the replies. You're both confirming what I was starting to believe. Which is great because initially I thought she was facing a huge tax bill.

All I know just now is her net income from her pensions is around £1500 a month (£18k per year) so I'm thinking gross income would be just shy of £20,000 per year.

So is there still a requirement to inform HMRC even if no extra tax payable? And would they calculate all the 'top-slicing' etc for us?

Thanks again

Jeremy535897

Does HMRC ask her to complete a self assessment tax return? If not, she should not need to report it, if no tax is due. See:
https://connect.avivab2b.co.uk/adviserPublicProductDocuments/IN13136?productCode=2121

You can read the government helpsheet here:
https://www.gov.uk/government/publications/gains-on-uk-life-insurance-policies-hs320-self-assessment-helpsheet/hs320-gains-on-uk-life-insurance-policies-2020

[Deleted User]

If her income is indeed £20000, the chargeable event will increase her income to 52206. Just shy of £2000 will be charged at the higher rate resulting in a bill of c£400. It would need to be declared and TSR claimed.

Jeremy535897

[Deleted User] said:

If her income is indeed £20000, the chargeable event will increase her income to 52206. Just shy of £2000 will be charged at the higher rate resulting in a bill of c£400. It would need to be declared and TSR claimed.

Top slicing relief will reduce the liability to nil. On re-reading the Aviva guidance, I can see that technically it appears mother should complete a self assessment return even though the tax liability is nil due to top slicing relief. The point seems to be that you have to complete the tax return to claim the relief. What an idiotically bureaucratic world we live in.

[Deleted User]

Jeremy535897 said:

[Deleted User] said:

If her income is indeed £20000, the chargeable event will increase her income to 52206. Just shy of £2000 will be charged at the higher rate resulting in a bill of c£400. It would need to be declared and TSR claimed.

Top slicing relief will reduce the liability to nil. On re-reading the Aviva guidance, I can see that technically it appears mother should complete a self assessment return even though the tax liability is nil due to top slicing relief. The point seems to be that you have to complete the tax return to claim the relief. What an idiotically bureaucratic world we live in.

Yes - that is what I am saying and I agree with your sentiment. Put simply, there will be further tax to pay unless a claim is made which can be only done by way of a tax return. I wouldn’t delay on this as, in my experience, the companies notify HMRC of the CE at the same time.

One other point - top slicing relief does not reduce the level of income on means tested benefits. In this case that will be £52206 - hopefully there is no issue here!

fuelcrusher

Thanks again for the replies. I've armed mum with some bullet points and she's going to ring the tax office sooner rather than later to see if it can be declared over the phone. If not then we'll go through a self assessment next April. Hopefully that, being online, will do all the required calculations for us.

[Deleted User]

fuelcrusher said:

Thanks again for the replies. I've armed mum with some bullet points and she's going to ring the tax office sooner rather than later to see if it can be declared over the phone. If not then we'll go through a self assessment next April. Hopefully that, being online, will do all the required calculations for us.

Unless things have changed I doubt that it would be productive. Certainly the declaration would be made but how one proceeds with the claim for top slicing relief is another matter. HMRC is not permitted to advise on tax matters. It is self-assessment after all!