Cashing in Investment Bond

uncleralph

I opened an Aviva Investment Bond in August 2001 with £8000. The current surrender value is now £18,663.20 with includes a final bonus of £3,151.54  I have made no withdrawals during this time but now I wish to withdraw the full amount. Can you help me with what income tax would be payable as I have received conflicting advice. 

Linton

Tax on investment bonds is complex.  Assuming these are normal on-shore investment bonds and as you have made no previous withdrawals...........

As I understand it:

1) taxable gain = value at end - value at start.  In your case this is £18663-£8000=£10663.
2) Add the gain  to your other income for the tax year in which you withdraw the full amount
3) If this total is below the higher rate tax band then there is no tax to be paid.  All basic rate tax is deemed to have been already paid by the bond.
4) If you were a higher rate tax payer prior to adding the bond gain and are still a higher rate tax payer after adding the gain then you will be charged the 20% additional higher rate tax on the gain.  As before you dont pay the basic rate part.
5) If adding the bond gain moves you from the basic rate tax band to the higher rate band magic known as "top slicing" happens which I wont bother to explain unless you are affected.

I guess something similar happens if the gain moves you from the higher rate band to the extra rate band.

uncleralph

Thank you for your reply, very helpful, going on what you say it wouldn’t take me into higher tax rate so I’m very happy 

Joe9090

Linton said:

Tax on investment bonds is complex.  Assuming these are normal on-shore investment bonds and as you have made no previous withdrawals...........

As I understand it:

1) taxable gain = value at end - value at start.  In your case this is £18663-£8000=£10663.
2) Add the gain  to your other income for the tax year in which you withdraw the full amount
3) If this total is below the higher rate tax band then there is no tax to be paid.  All basic rate tax is deemed to have been already paid by the bond.
4) If you were a higher rate tax payer prior to adding the bond gain and are still a higher rate tax payer after adding the gain then you will be charged the 20% additional higher rate tax on the gain.  As before you dont pay the basic rate part.
5) If adding the bond gain moves you from the basic rate tax band to the higher rate band magic known as "top slicing" happens which I wont bother to explain unless you are affected.

I guess something similar happens if the gain moves you from the higher rate band to the extra rate band.

+1 thanks for the above. Is this a good explanation of top slicing? https://www.canadalife.co.uk/technical-support/calculating-top-slice-relief-on-a-chargeable-gain/

Linton

Joe9090 said:

Linton said:

Tax on investment bonds is complex.  Assuming these are normal on-shore investment bonds and as you have made no previous withdrawals...........

As I understand it:

1) taxable gain = value at end - value at start.  In your case this is £18663-£8000=£10663.
2) Add the gain  to your other income for the tax year in which you withdraw the full amount
3) If this total is below the higher rate tax band then there is no tax to be paid.  All basic rate tax is deemed to have been already paid by the bond.
4) If you were a higher rate tax payer prior to adding the bond gain and are still a higher rate tax payer after adding the gain then you will be charged the 20% additional higher rate tax on the gain.  As before you dont pay the basic rate part.
5) If adding the bond gain moves you from the basic rate tax band to the higher rate band magic known as "top slicing" happens which I wont bother to explain unless you are affected.

I guess something similar happens if the gain moves you from the higher rate band to the extra rate band.

+1 thanks for the above. Is this a good explanation of top slicing? https://www.canadalife.co.uk/technical-support/calculating-top-slice-relief-on-a-chargeable-gain/

I can well believe it is correct.  Whether the form of that document adds to good understanding of top slicing is less clear.   Perhaps https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/top-slicing-relief-facts may be an easier read.