Some advice regarding overseas assets, income or gains nudge letter

waribai

Hi,

I would appreciate some advice. 
Today I received a nudge letter from HMRC regarding"overseas income or gains you may have to pay tax on"
My only overseas investment is an  investment fund plan I set up on IOM as I was working overseas and non-UK domiciled and wanted a regular savings vehicle. I contributed £400 a month to this fund until 2021. I returned to the UK in 2008 and have been a basic taxpayer ever since on PAYE. The fund was untouched until 2020 when I made a £65k withdrawal to purchase my residential property back in the UK. The value of my investment at the time was around £135k.
According to my rough calculations with Time Apportionment Relief and the deduction of premiums contributions as a %, I am well under the 2020/2021 Capital Gains allowance threshold. 
The question is how I respond to HMRC, do I just tick box 3? i.e. I did not declare as it is covered by my personal allowances or should I register for the WDF and show them my calculations and rationale? The first is the truth and quick and easy. My only preference for the latter is that with the first there is no explanation and they will get back to me again. While with the second it would be easier for them to understand and they can then deduce that even though I have used the WDF, there is no tax to declare. I hope this makes sense!

Jeremy535897

Are you sure that this is not an offshore income bond? What did Scottish Provident say about the tax on the withdrawal?

waribai

 It's one of those from back in the day where you could invest in a selection of their funds switching in and out i.e. UK smaller companies,  world bond, US Equity etc, etc.

Jeremy535897

Yes, but it depends on the wrapper. That's why I asked if it was an offshore income bond. The tax treatment is totally different to a unit trust, or a portfolio of shares.

waribai

Ah...ok.......it was called Scottish Provident Momentum

https://www.rl360adviser.com/news/2014/corp_action_spiglobalmgd_closure_jun14.htm

Am I right in thinking that it was an investment bond?

I also have an IOM offshore bank account from that time which has I believe the grand sum of £3 in it. Maybe that has triggered the letter too?

[Deleted User]

I would be inclined to think that income tax and not capital gains tax is appropriate but it’s been a while since I have dealt with these. 

Check this out!


https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/offshore-bonds-taxation-explained

Jeremy535897

purdyoaten2 said:

I would be inclined to think that income tax and not capital gains tax is appropriate but it’s been a while since I have dealt with these. 

Check this out!


https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/offshore-bonds-taxation-explained

The fact that these products derive from investments with an insurance company, that RL360's literature refers to "policies" and "chargeable events" leads me to conclude that these are offshore income bonds, and therefore income tax applies. There is also no basic rate tax credit, although top slicing relief may reduce the higher rate tax liability. There may be time apportionment relief for periods of non-UK residence. See:
https://techzone.abrdn.com/public/investment/Practical-guide-investment-bond

waribai

Thanks.  Also, I believe 5% allowance for each payment multiplied by the number of years the policy was in force:

https://www.rl360adviser.com/generic/downloads/tech047-uk-taxation-single-payment.pdf

I am starting to think that what has actually triggered this is the plan matured in September but I have not fully encashed it yet and I am just leaving it in place until my income drops down. 

Jeremy535897

The 5% is the annual limit you can take without a tax charge.

waribai

Yes. According to the literature though it seems this carries over if unused…

[Deleted User]

waribai said:

Yes. According the literature though it seems this carries over if unused…

That is correct. Note the point made by Jeremy regarding the lack of basic rate credit. 

I remember almost being caught out by this in an estate I was dealing with many years ago!