Capital Investment Bond - chargeable event taxation

skycatcher

Hello! I know this is complicated - I've only just started to try and get my head around it!
Background :- my wife was advised to put £10000 into a Standard Life Capital investment bond in 1997 (25 yrs ago). It has never been touched since. The current valuation is £31000 so a gain of £21000. 
She is self employed with a profit usually around £7k which she puts almost all into a SIPP. She retires in 3 years (not SPA). 
If she were to cash this in what would be the tax implication this year. Does tapering apply to basic/non tax payers? 
Any ball park guidence would help,

Thanks.

Dazed_and_C0nfused

skycatcher said:

Hello! I know this is complicated - I've only just started to try and get my head around it!
Background :- my wife was advised to put £10000 into a Standard Life Capital investment bond in 1997 (25 yrs ago). It has never been touched since. The current valuation is £31000 so a gain of £21000. 
She is self employed with a profit usually around £7k which she puts almost all into a SIPP. She retires in 3 years (not SPA). 
If she were to cash this in what would be the tax implication this year. Does tapering apply to basic/non tax payers? 
Any ball park guidence would help,

Thanks.

Does she have any other taxable income on top of the profits and the Chargeable Event?

Does she have the reduced Personal Allowance of £11,310 (Marriage Allowance applicant)?

jimmo

Chargeable events on UK Investment bonds are treated as if they had already suffered basic rate tax. This is notional tax, and cannot be reclaimed.
With other income of £7k and a chargeable event gain of £21k she will remain a basic rate taxpayer so there will be no additional tax to pay and, because the tax "suffered" on the chargeable event gain is notional, nothing to reclaim.
For people who are taken into HR liability there is Top Slicing Relief but you don't need to be concerned about that.
 

skycatcher

Dazed_and_C0nfused said:

skycatcher said:

Hello! I know this is complicated - I've only just started to try and get my head around it!
Background :- my wife was advised to put £10000 into a Standard Life Capital investment bond in 1997 (25 yrs ago). It has never been touched since. The current valuation is £31000 so a gain of £21000. 
She is self employed with a profit usually around £7k which she puts almost all into a SIPP. She retires in 3 years (not SPA). 
If she were to cash this in what would be the tax implication this year. Does tapering apply to basic/non tax payers? 
Any ball park guidence would help,

Thanks.

Does she have any other taxable income on top of the profits and the Chargeable Event?

Does she have the reduced Personal Allowance of £11,310 (Marriage Allowance applicant)?

Interest of around £1k and yes the reduced allowance due to paying the marriage allowance to me.

skycatcher

jimmo said:

Chargeable events on UK Investment bonds are treated as if they had already suffered basic rate tax. This is notional tax, and cannot be reclaimed.
With other income of £7k and a chargeable event gain of £21k she will remain a basic rate taxpayer so there will be no additional tax to pay and, because the tax "suffered" on the chargeable event gain is notional, nothing to reclaim.
For people who are taken into HR liability there is Top Slicing Relief but you don't need to be concerned about that.
 

So she would be just liable for 20% tax above her personal allowance?

jimmo

skycatcher said:

jimmo said:

Chargeable events on UK Investment bonds are treated as if they had already suffered basic rate tax. This is notional tax, and cannot be reclaimed.
With other income of £7k and a chargeable event gain of £21k she will remain a basic rate taxpayer so there will be no additional tax to pay and, because the tax "suffered" on the chargeable event gain is notional, nothing to reclaim.
For people who are taken into HR liability there is Top Slicing Relief but you don't need to be concerned about that.
 

So she would be just liable for 20% tax above her personal allowance?

No. Her liability at basic rate would be covered by the notional tax deducted.

skycatcher

jimmo said:

skycatcher said:

jimmo said:

Chargeable events on UK Investment bonds are treated as if they had already suffered basic rate tax. This is notional tax, and cannot be reclaimed.
With other income of £7k and a chargeable event gain of £21k she will remain a basic rate taxpayer so there will be no additional tax to pay and, because the tax "suffered" on the chargeable event gain is notional, nothing to reclaim.
For people who are taken into HR liability there is Top Slicing Relief but you don't need to be concerned about that.
 

So she would be just liable for 20% tax above her personal allowance?

No. Her liability at basic rate would be covered by the notional tax deducted.

Is that calculated as 5% x 25yrs? How is this declared on the self assessment return?

Thanks for your help btw!

[Deleted User]

skycatcher said:

jimmo said:

skycatcher said:

jimmo said:

Chargeable events on UK Investment bonds are treated as if they had already suffered basic rate tax. This is notional tax, and cannot be reclaimed.
With other income of £7k and a chargeable event gain of £21k she will remain a basic rate taxpayer so there will be no additional tax to pay and, because the tax "suffered" on the chargeable event gain is notional, nothing to reclaim.
For people who are taken into HR liability there is Top Slicing Relief but you don't need to be concerned about that.
 

So she would be just liable for 20% tax above her personal allowance?

No. Her liability at basic rate would be covered by the notional tax deducted.

Is that calculated as 5% x 25yrs? How is this declared on the self assessment return?

Thanks for your help btw!

The 5% tax free withdrawal is an entirely different matter. The taxable gain has deemed tax paid at 20% - it is not reclaimable. 

They are reported on the additional information section of the return. (You have to tailor your return to state that you wish to include additional information)

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1148611/SA101_2023.pdf

Albermarle

She is self employed with a profit usually around £7k which she puts almost all into a SIPP.

Off topic but just to be clear. If she has a profit of £7K , the maximum she can add to a SIPP is £5,600, and the SIPP provider will add £1,400 in tax relief ( to make £7K gross).

skycatcher

Albermarle said:

She is self employed with a profit usually around £7k which she puts almost all into a SIPP.

Off topic but just to be clear. If she has a profit of £7K , the maximum she can add to a SIPP is £5,600, and the SIPP provider will add £1,400 in tax relief ( to make £7K gross).

Yes... Sorry i wasn't clear.... She only puts in the 80%.

jimmo

Albermarle said:

She is self employed with a profit usually around £7k which she puts almost all into a SIPP.

Off topic but just to be clear. If she has a profit of £7K , the maximum she can add to a SIPP is £5,600, and the SIPP provider will add £1,400 in tax relief ( to make £7K gross).

I never understand this. In my day you had to actually pay the tax for the SIPP provider to claim the tax relief.