Withdrawing life assurance bond: Can we allocate the savings this way?

skatehorn

Hi everyone

My elderly parents are intending to take money out of a life assurance bond and want to ensure they do it in the most tax-efficient way. Both receive state pension, and my father also receives a pension through his old job. The savings bond has approximately £16K and is held jointly. On the letter they received about the bond, it mentions that approximately £12K is classed as a chargeable event, which I think means tax would be calculated on that amount, not the full £16K.

My father's private pension plus state pension puts him above his tax-free personal allowance, so tax is taken from him throughout the year. My mother who receives the state pension only is obviously not taxed.

Neither do self-assessment obviously; my father's tax is simply taken before it reaches him and is detailed each year in his P60.

Rather than taking out the £16K in one go, I was thinking it would be better for them to take it out in two or more lump sums: one this financial year, another in the next. But since the savings bond is held jointly, does HMRC regard this as a 50/50 split for tax purposes or can all of the withdrawal(s) be allocated to my mother? Being able to do the latter would ensure they pay no tax on the withdrawal.

Assuming it's OK to do this, would they have to declare this in some way, or is it just something they'd have to explain/prove if they were ever audited?

Thanks for any help you can give us!

Thanks,
Kenny

[Deleted User]

I think that you are worrying unnecessarily. Any tax deducted from the chargeable event is ‘deemed’ or ‘notional’ It is NOT repayable under any circumstances and has no effect on personal allowances. The only issue would be if the payment took either into higher rate tax which does not look likely. From HMRC internal manual:

‘the notional tax is not treated as repayable in any circumstances but basic rate tax is still treated as paid if some or all of the gain is liable to income tax at the starting rate for savings’

You cannot allocate the payment to your mother - the policy is and always was a joint policy but, as I say, it will make no difference.

https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual/iptm3810

skatehorn

Believe me, I could write a BOOK on worrying unnecessarily! Thanks for the reply and advice. Really appreciate it.

[Deleted User]

skatehorn said:

Believe me, I could write a BOOK on worrying unnecessarily! Thanks for the reply and advice. Really appreciate it.

Perhaps, somewhere within my reply. I should have said that there would be no further tax to pay!