Endowment payment - is it taxable?

mc276

Hope this doesnt sound too thick, but I think we have an agreed settlement from our endowment company at just less than 30k. Are there any tax liabilities for this (Its a joint endowment)?

dunstonh

Yes. The settlement is liable for income tax on interest portion of the compensation (and not the entire sum). In addition, if the endowment has not met the qualifying rules, the gain is potentially taxable if you are a higher rate taxpayer.

In reality, not many actually pay tax. It depends on the compensation method. Refund of premiums plus interest (and a lump sum where applicable) is the main occassion this would occur.

Compensationitis

Good grief...

The endowment payount only becomes a chareagable event on early encashment, get your facts right!

mc276

Thank's for the advice.

So do we collect the compensation thats been offered and is that tax free? and leave endownment running till it matures?
Or sod it and cash in?
Decisions/Decisions

Objective to pay to pay HM Government as little as possible but not break the law.

dunstonh

Compensationitis wrote:

Good grief...

The endowment payount only becomes a chareagable event on early encashment, get your facts right!

Get your facts right. Mine is a virtual copy and paste from the FSA website.

The surrender would invoke a chargeable event and the compensation is potentially liable for tax if interest is paid.

So do we collect the compensation thats been offered and is that tax free?

The responsibility of the insurer is to put you in the same position you were if you had a repayment mortgage from the start. If the compensation plus surrender value does that, then you should accept it.

To find out if there is any interest in the compensation, you would need to ask the insurer. It really depends on what calculation method has been used. In simple terms, if you are a higher rate tax payer or damned close to being one then you ought to investigate this further. If the policy is over 10 years old, then you can ignore qualifying rules and forget about tax on the endowment. Its then only the compensation method you need to look into.

and leave endownment running till it matures?

If the compensation is that amount, it suggests the endowment must be a disaster. Is that the sort of thing you want to continue paying into? In reality, we don't know enough about the endowment. It could be that your premiums are £250pm and have been paying for 10 years. In which case, refund of premiums plus interest would be over 30k. Just because you got compensation, it doesnt mean that the endowment is bad. Some very very good endowments have been surrendered and the policyholder paid compensation. The complaint doesnt look at the performance or quality of the endowment. It just looks at whether endowment or repayment mortgage was the right thing or not.

EdInvestor

Hello mc276

Post some figures abouyt the endowment so we can look at what you should do. 30k is indeed a lot larger than the average compo.

Guaranteed sum assured
Total bonuses
Maturity date
Monthly payment
Surrender value