Tax on a Bond

m4rkje

Myself and my wife took out a bond in 2001 with £22k in joint names

I have since taken the original capital tax free

Is the remaining balance with is all profit subject to tax should I cash it in?

I have heard something along the lines that the investment bond is taxable and the profit is already taxed before I see it, so should be available tax free?

Any help would be appreciated 

InvesterJones

There isn't the possibility to take the original capital tax free. If capital gains is due then it's payable on all of the account. That said, many bonds are exempt - if that is the case, all of the capital gain would be. What is the bond in question?

HappyHarry

m4rkje said:

Myself and my wife took out a bond in 2001 with £22k in joint names

I have since taken the original capital tax free

Is the remaining balance with is all profit subject to tax should I cash it in?

I have heard something along the lines that the investment bond is taxable and the profit is already taxed before I see it, so should be available tax free?

Any help would be appreciated 

It sounds like you have invested in an onshore Investment Bond and have withdrawn all your accumulative 5% per annum capital repayments. 

If so, the remaining funds are, as you say, all profit and will be taxable as income on surrender.

The calculation for how much income tax you will pay is quite complex. However, if you let us know the total gain, yours and your wife's expected incomes this tax year, and if the investment bond is onshore or offshore, then you may get some good estimates for your tax liability from the more experienced members of this forum.

m4rkje

InvesterJones said:

There isn't the possibility to take the original capital tax free. If capital gains is due then it's payable on all of the account. That said, many bonds are exempt - if that is the case, all of the capital gain would be. What is the bond in question?

I have already taken the original investment tax free.
I am looking for guidance as to whether the interest earned over the last 24years can be taken tax free 

m4rkje

@HappyHarry

The bond is with Aviva and is a 

Distribution AL / PSB / MLC

To my knowledge I have not taken any 'accumulative 5% per annum capital repayments' unless by coincidence it happened to be the same value as the original investment. We have taken the original capital 

Current salary, as I have retired early is a military pension I pay tax on. My wife has full state pension only 

Many thanks

Eco_Miser

You've had the bond over 20 years; 20 times 5% is 100% ie the value of the original investment.

HappyHarry

m4rkje said:

@HappyHarry

The bond is with Aviva and is a 

Distribution AL / PSB / MLC

To my knowledge I have not taken any 'accumulative 5% per annum capital repayments' unless by coincidence it happened to be the same value as the original investment. We have taken the original capital 

Current salary, as I have retired early is a military pension I pay tax on. My wife has full state pension only 

Many thanks

So it is an onshore bond.

If you want any guidance on the tax position on surrender you will need to let us know the gain on the bond, and your income this year. Presumably your wife's income is £11,502 per year?

m4rkje

@Eco_Miser

100% meaning what? I can take the interest 100% tax free? 

m4rkje

@HappyHarry

original investment £22k which I have taken

current value £38k

HappyHarry

m4rkje said:

@HappyHarry

original investment £22k which I have taken

current value £38k

So a gain of £38,000 which is £19,000 each, on which basic rate tax will already have been paid by Aviva. 

There is a calculation called “top-slicing” that would confirm, but unless your total income this year is above £50,000 then it is unlikely that you would have any tax to pay if you surrender this onshore bond.

Eco_Miser

m4rkje said:

@Eco_Miser

100% meaning what? I can take the interest 100% tax free? 

No, that's the 100% of the capital you're allowed to take out as 'accumulative 5% per annum capital repayments' over 20 years.

As it happens, you can probably (see HappyHarry's post) take the interest with no further tax to pay, not the same as tax free.