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Top slicing relif on investment bond

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my mother-in-law has an onshore investment bond that she wishes to sell

the investment has been held since 2001 and in that time has gone from £35,000 to being valued at £120,000

i have done some research and believe as her only other income is a basic state pension that she shouldn't be paying tax on this and is entitled to top slicing relief

is there anything that must be done to claim this tax free? i read some places online that suggested just cashing in the bond is all that's needed but others say that you must fill in self assessment forms to claim top slicing relief

neither her nor i have ever filled in a self assessment and with her being elderly it'll be a little difficult to work through this with her. both she and i are worried about this

she has allowed herself to almost live in poverty for the last year despite having this large sum because she has found the process of selling the bond and possible tax implications to be too much for her to handle. i am hoping to help her with this but i too am unsure where to really start and have no experience at all with things like this.

i would appreciate some advice on what the steps are and how complicated this process is

Comments

  • Sea_Shell
    Sea_Shell Posts: 9,551 Forumite
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    Is this bond held via an IFA or direct (with who)

    If via an IFA, do they not give any advice as to the procedure?
    How's it going, AKA, Nutwatch? - 12 month spends to date = 2.57% of current retirement "pot" (as at end May 2024)
  • dunstonh
    dunstonh Posts: 116,830 Forumite
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    is there anything that must be done to claim this tax free?
    Onshore bonds are never tax free.     They pay tax internally.


    the investment has been held since 2001 and in that time has gone from £35,000 to being valued at £120,000
    Has there been any withdrawals or surrenders in that period?  if so, then they need to be factored in.

    You dont need to tell HMRC about a chargeable gain unless they ask or it takes you into higher rate banding.

    If there are no withdrawals/surrenders in that period, then, based on what you have said, there would be no further tax payable.

    There are ways to mitigate the tax situation further  (such she be a close to higher rate and this taking her over).  Such as doing partial surrenders of policy segments in multiple policy/tax years.  e.g. surrendering a quarter of the policies each year for 4 years would mean only the surrendered part in that tax/policy year would apply. 


    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • reaseton
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    Sea_Shell said:
    Is this bond held via an IFA or direct (with who)

    If via an IFA, do they not give any advice as to the procedure?
    the financial advisor who set this up retired shortly after setting this up and it's been just left ever since.
    dunstonh said:
    is there anything that must be done to claim this tax free?
    Onshore bonds are never tax free.     They pay tax internally.


    the investment has been held since 2001 and in that time has gone from £35,000 to being valued at £120,000
    Has there been any withdrawals or surrenders in that period?  if so, then they need to be factored in.

    You dont need to tell HMRC about a chargeable gain unless they ask or it takes you into higher rate banding.

    If there are no withdrawals/surrenders in that period, then, based on what you have said, there would be no further tax payable.

    There are ways to mitigate the tax situation further  (such she be a close to higher rate and this taking her over).  Such as doing partial surrenders of policy segments in multiple policy/tax years.  e.g. surrendering a quarter of the policies each year for 4 years would mean only the surrendered part in that tax/policy year would apply. 


    i believe for a period she did receive £70 a month payment from the investment but never any significant amounts.

    if counted as a income for that year it would take her income to over£100,000 but with top slicing spread over the 20 years i don't think it she should be paying additional tax

    my main concern is are there any tax forms or claim forms to fill it to actually get the top slicing relief or is it just done automatically when the investment is sold?


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