Tax on a one-time payment

CCTheLizard

Hi,  I'm sure this has been asked before, but the search didn't turn anything up, so anyway.

I'm in full-time employment and everything to do with taxation is dealt with through PAYE.
I don't fill in a Self-assessment Tax Return.
Last December I received a single sum pay-out from an American annuity of which I was a named beneficiary.
The annuity was set up by a now deceased relative who lived in the USA.

The sum was in US Dollars and amounts to £12,087.40.
Not life-changing I know, but more than a tank-full of petrol (at the moment).

This is not 'income' in the sense that the online documents appear to mean - it is not interest.
It's just one cheque - there will not be a second.

So the question is:  Should I fill in an online Self-assessment Tax Return next April?
If this sum were added to my annual salary it would not take me into a hight tax band or anything.
Please be gentle if this is a stupid question.

[Deleted User]

So - it is simply a legacy? Was it the case that the policy paid out on death and you were the beneficiary? Need more details but cant see at this stage why it would be taxable income or need declaring as such.

CCTheLizard

Hi,

It's an annuity of which I am one of the named beneficiaries. I'm not sure that's actually a legacy as the money was not in the deceased person's estate as such.
When I filled in the form to claim it there was a statement to the effect that US Tax was due on it. But as the UK has an arrangement with the US then any tax would be calculated in the UK by HMRC. But no confirmation of whether UK tax was actually due.

Jeremy535897

This is a hard question. If it was a UK annuity, there is guidance here:
https://www.onlinemoneyadvisor.co.uk/pensions/pension-annuities/annuities-and-death/#will-my-annuity-be-taxed-after

One would hope that non-UK annuities are treated no worse.

It may well be that the age of the annuitant when they died (75 is the dividing line) is relevant. But things that are called annuities sometimes are pensions, and a definitive answer is unlikely without a detailed review of the documentation.

CCTheLizard

Hi,

It's called a 'Guaranteed Fixed Annuity' (Nonqualified, whatever that means) and the owner was in her nineties.

Jeremy535897

A non-qualified annuity is one bought out of taxed funds, so in the US, only the growth is taxed. That distinction is somewhat similar to the difference here between a purchased life annuity (the non-qualified sort), and a pension annuity. I have not come across a PLA with a lump sum payable to a beneficiary after the death of the annuitant. With a pension annuity, payments to a beneficiary if the annuitant is under 75 will be tax free, but taxed at the marginal rate of the beneficiary in your case as the annuitant was in her 90s. However, this looks like a PLA, so there could be an argument for the part attributable to the original capital not being taxable. Unfortunately the paperwork would have to set this out with figures to take advantage of it. So I fear my conclusion is that it is subject to income tax, and you will need to complete a self assessment tax return, but I say this without a lot of confidence.