Chargeable Event Gain

MeteredOut

See here for more details: https://www.scottishwidows.co.uk/investments/options/pip.html

and https://adviser.scottishwidows.co.uk/assets/literature/docs/x2340.pdf

The latter is not specific to the Halifax PIP, but contains the same details about the annual 5% deferred tax allowance etc.

You should read up on how you can release funds via cashing in individual segments, or by partially cashing in part of each segment; each has different tax implications.

Also note the difference between there being a chargeable gain and you having to pay tax on a chargeable gain. The former can arise when you cash in segments greater the 5% cumulative deferred allowances. The latter may arise from a chargeable gain, depending on your own person tax situation (ie. other income)

gandalf24

The paragraph after this says.

There may be an income tax charge if you’re a higher or additional rate taxpayer

and a gain arises or if a gain results in you becoming a higher or additional

rate taxpayer.

gandalf24

I am thinking of cashing in a in a Halifax PIP plan Initial investment lump sum of £50k

Nothing else invested no previous withdrawals and held for 17 years.

It says the proceeds of my plan are payable free of any personal liability to UK income tax or to capital gains tax

There is no liability to the basic rate of income tax because growth on the underlying investments is taxed via corporation tax at a rate deemed equivalent to the basic rate of income tax.

There may be an income tax charge if you’re a higher or additional rate taxpayer

and a gain arises or if a gain results in you becoming a higher or additional

rate taxpayer.

I am a standard rate taxpayer in Scotland.

And gain would be approx £80000 believe that due to top slicing relief I would be £80k divided by 17 years held = £4705 .

This would take me into the next tax rate from standard rate to Basic tax rate and just wondering if anyone knows if top slicing also applies to the basic tax rate . 

And if any tax for me to be paid on this.

Would just like some clarity about this if anyone can advise in layman's terms please before I proceed.

Many thanks for any help.

gravel_2

This is a duplicate thread.

gandalf24

Good evening

I am just looking to clarify the scottish tax position , not a duplicate thread just similar to another one I had put up about chargeable events gain which was answered, just wanted clarification on the scottish tax position as it is relevant to me.

poseidon1

gandalf24 said:

The paragraph after this says.

There may be an income tax charge ifyou’re a higher or additional rate taxpayer

and a gain arises or if a gain results in you becoming a higher or additional

rate taxpayer.

You need specific Scottish tax advice. Halifax's explanation presupposes an English tax payer liable to potential 40% or 45% tax depending on the outcome of the top slicing relief exercise.

However, as I previously indicated you have 6 different tax bands in Scotland to contend with,  with 4 bands above basic rate ( ie 21%, 42%, 45% and 48%). So the question is,  does this qualitatively change how top slicing works for Scottish investors?

You are meeting your IFA soon, so hopefully he can throw more light on this, otherwise consult a qualified Scottish tax accountant. 

It would be good to exit your PIP with no further tax liabilities, but you have a complex domestic tax regime coupled to a less than straight forward investment structure, so care needed to achieve your wholly tax free exit therefrom.

Good luck!

gravel_2

Don't quote me on this but I did look into it as it also affects my savings income - apparently the Scottish tax bands only apply on employment income. Scottish tax payers pay the rUK rate on non-employment income.  

kuratowski

I suggest you take a look at the following article:
Top Slicing Relief for Bonds Taxation | M&G Wealth Adviser (mandg.com)

Following excerpt answers your question; but reading the full article may help to understand how top slicing relief works.

Nevertheless, given that the Scottish Parliament can only set the rates and the limits for non-savings and non-dividend income, then for savings, dividends and capital gains, it is necessary to ignore the Scottish threshold and refer to the UK limit instead.

gandalf24

My heads in a spin with this , all very helpful. My next question is if I was to fully cash this in £130k , initial investment £50k held for 17 years no previous withdrawals, can anyone calculate what i would receive from this and if any additional tax for me to pay, going on the assumption that I would be taxed at UK basic tax rate.

MeteredOut

gandalf24 said:

My heads in a spin with this , all very helpful. My next question is if I was to fully cash this in £130k , initial investment £50k held for 17 years no previous withdrawals, can anyone calculate what i would receive from this and if any additional tax for me to pay, going on the assumption that I would be taxed at UK basic tax rate.

Can you share your workings to date, based on the information you've been provided on this and the other thread?

eg, have you calculated your cumulative 5% deferred tax allowance?

No-one will be able to tell you what tax you will have to pay without knowing your other income in some level of detail.

What you need to do first is calculate the chargeable gain. From where I see it, you've been provided with the details to do that. Or, you can contact a tax accountant to help. The top-slicing can be very complex.

Do you *have* to cash in the full amount in this tax year, or are you looking to minimise your tax liability? If the latter, you'll need to do calculations on both cashing out full segments, or partially cashing out across all segments; each has different tax implications.