Chargeable event on death

imajen8tion

Hi all

My late mother had a unit linked investment bond, which paid out 101% on death. She had withdrawn money over time and I can see chargeable event certificates in her files - broadly saying that basic income tax (20%) on any gains made on her investment is covered under existing tax paid on the investments, but if the gain takes you above the tax threshold then you may have to pay additional tax. Understood.

However, now she has passed, I have been sent the chargeable gains certificate for the remaining balance of her investments with the same point. As this has 101% death benefit, this felt like it was life insurance rather than investment, so I wasn't expecting to have any chargeable gain.

So my questions are:
1. Does it make a difference if the payout has a life insurance element?
2. Does the chargeable gain really apply to me (her beneficiary) rather than my mother's estate income?
3. If it does apply to beneficiaries, will the gain be split for tax purposes between me and my sister (50% each as per will)? For info, my sister is basic rate so should incur no further tax, whereas I would have to pay additional tax if this were applicable.
4. As this is part of her estate, presumably the value of the payout also needs to be included in the estate valuation for inheritance tax purposes? This feels like double taxation to me if it is both an estate payout and an income taxable event?

Any thoughts would be much appreciated. I am struggling to get a straight answer on this one and I don't want to do something wrong, but equally don't want to be over-paying tax!

SimonWebs

The chargeable event certificate I got was in our late relatives name, dated on the day of death & we needed to report this to hmrc as income of our relative.

I got stressed over this but I telephoned the tax office helpline & they told us what we needed to do. 

Probably best to call the tax office.

imajen8tion

SimonWebs said:

The chargeable event certificate I got was in our late relatives name, dated on the day of death & we needed to report this to hmrc as income of our relative.

I got stressed over this but I telephoned the tax office helpline & they told us what we needed to do. 

Probably best to call the tax office.

Thank you. I tried calling but couldn't get through, perhaps needs more patience on my part and I will try again. The certificate was in my mother's name but the letter was addressed to me with "you need to" language. I may need to feed back to their customer service team on the way the letters come across.

Much appreciated.

fmchaos

SimonWebs said:

The chargeable event certificate I got was in our late relatives name, dated on the day of death & we needed to report this to hmrc as income of our relative.

I got stressed over this but I telephoned the tax office helpline & they told us what we needed to do. 

Probably best to call the tax office.

Hi, were in a similar position. Do you mind telling us what the tax office helpline told you to do?  And was the gain able to have top slicing applied to it?   Regards

poseidon1

imajen8tion said:

Hi all

My late mother had a unit linked investment bond, which paid out 101% on death. She had withdrawn money over time and I can see chargeable event certificates in her files - broadly saying that basic income tax (20%) on any gains made on her investment is covered under existing tax paid on the investments, but if the gain takes you above the tax threshold then you may have to pay additional tax. Understood.

However, now she has passed, I have been sent the chargeable gains certificate for the remaining balance of her investments with the same point. As this has 101% death benefit, this felt like it was life insurance rather than investment, so I wasn't expecting to have any chargeable gain.

So my questions are:
1. Does it make a difference if the payout has a life insurance element?
2. Does the chargeable gain really apply to me (her beneficiary) rather than my mother's estate income?
3. If it does apply to beneficiaries, will the gain be split for tax purposes between me and my sister (50% each as per will)? For info, my sister is basic rate so should incur no further tax, whereas I would have to pay additional tax if this were applicable.
4. As this is part of her estate, presumably the value of the payout also needs to be included in the estate valuation for inheritance tax purposes? This feels like double taxation to me if it is both an estate payout and an income taxable event?

Any thoughts would be much appreciated. I am struggling to get a straight answer on this one and I don't want to do something wrong, but equally don't want to be over-paying tax!

See below a helpful article explaining what you are faced with here by way of a potential income tax liability on the bond encashment value. It is by reference to your mother's personal tax position on death and reportable on her final tax return.  The life assurance element in the bond is responsible for the complex tax treatment of life company investments bond gains both during her life and then on her subsequent death..

https://www.bennettbrooks.co.uk/news-events/blog/death-and-taxes-on-investments-bonds/

You will note from the article above that 'top slicing relief' maybe available to mitigate or wholly avoid a bond income tax liability on your mother's death. A link to a technical briefing note on this is appended below

https://www.mandg.com/wealth/adviser-services/tech-matters/investments-and-taxation/top-slicing-relief/top-slicing-relief-facts

The calculation for the application of top slicing relief can be complicated due to the way bond gains interact with the  personal savings allowance and starting rate of tax. Therefore  as regards completion and submission of your mother's final income tax return ( to include  bond gains)  it might make sense to instruct a Chartered Accountant to handle that task on your behalf and quantify her final tax liabilty in year of death for IHT purposes.

As for potential IHT, the bond encashment value is an asset of the estate to be reported accordingly. However, if an income tax liabilty does arise on the bond gain, then this tax is a debt at date of death and is a fully deductible 'expense' for IHT purposes.

poseidon1

poseidon1 said:

imajen8tion said:

Hi all

My late mother had a unit linked investment bond, which paid out 101% on death. She had withdrawn money over time and I can see chargeable event certificates in her files - broadly saying that basic income tax (20%) on any gains made on her investment is covered under existing tax paid on the investments, but if the gain takes you above the tax threshold then you may have to pay additional tax. Understood.

However, now she has passed, I have been sent the chargeable gains certificate for the remaining balance of her investments with the same point. As this has 101% death benefit, this felt like it was life insurance rather than investment, so I wasn't expecting to have any chargeable gain.

So my questions are:
1. Does it make a difference if the payout has a life insurance element?
2. Does the chargeable gain really apply to me (her beneficiary) rather than my mother's estate income?
3. If it does apply to beneficiaries, will the gain be split for tax purposes between me and my sister (50% each as per will)? For info, my sister is basic rate so should incur no further tax, whereas I would have to pay additional tax if this were applicable.
4. As this is part of her estate, presumably the value of the payout also needs to be included in the estate valuation for inheritance tax purposes? This feels like double taxation to me if it is both an estate payout and an income taxable event?

Any thoughts would be much appreciated. I am struggling to get a straight answer on this one and I don't want to do something wrong, but equally don't want to be over-paying tax!

See below a helpful article explaining what you are faced with here by way of a potential income tax liability on the bond encashment value. It is by reference to your mother's personal tax position on death and reportable on her final tax return.  The life assurance element in the bond is responsible for the complex tax treatment of life company investments bond gains both during her life and then on her subsequent death..

https://www.bennettbrooks.co.uk/news-events/blog/death-and-taxes-on-investments-bonds/

You will note from the article above that 'top slicing relief' maybe available to mitigate or wholly avoid a bond income tax liability on your mother's death. A link to a technical briefing note on this is appended below

https://www.mandg.com/wealth/adviser-services/tech-matters/investments-and-taxation/top-slicing-relief/top-slicing-relief-facts

The calculation for the application of top slicing relief can be complicated due to the way bond gains interact with the  personal savings allowance and starting rate of tax. Therefore  as regards completion and submission of your mother's final income tax return ( to include  bond gains)  it might make sense to instruct a Chartered Accountant to handle that task on your behalf and quantify her final tax liabilty in year of death for IHT purposes.

As for potential IHT, the bond encashment value is an asset of the estate to be reported accordingly. However, if an income tax liabilty does arise on the bond gain, then this tax is a debt at date of death and is a fully deductible 'expense' for IHT purposes.

Apologies, just noticed this was a stale thread. However the references maybe helpful to others in a similar predicament.