Capital gains tax on investment bond

aquilaanm

I pay tax at basic rate. I have a bond which started as £10,000 investment in 1997.  Now valued at £25,000.  I had no idea I would be taxed on profits! I do now.  Having researched it I think I can take up to £3000 out each year without paying CGT or any other tax.  Is anyone able to confirm this for me? Many thanks

masonic

Investment bonds are complicated, but you may find the following helpful: https://techzone.abrdn.com/public/investment/Taxation-of-bonds

Tax will depend whether it was onshore or offshore, and you are normally allowed to take up to 5% per year (which accumulates if you don't use it), so it may be the case that you won't be taxed on the first £10,000, the rest will fall within your basic rate tax band, and there will be nothing further to pay.

There won't be CGT to pay, as withdrawals are treated as income and the onshore variety come with a 20% income tax credit, while the offshore variety can be combined with your other savings income for tax purposes.

HappyHarry

If it is an investment bond then it is liable to income tax rather than CGT.

The taxable gains is calculated per year. In your case you have made a gain of £15,000 over 18 years, so £833.33 per year.

If it is an onshore investment bond then it has paid basic rate tax internally and you would only have to pay tax if this £833.33 additional income took you into the higher rate tax band.

If it is an offshore investment bond then you will have to pay basic rate income tax on the £15,000 gain if the additional £833.33 remained in your basic rate tax band, else you would be exposed to some higher rate income tax.

dunstonh

 Having researched it I think I can take up to £3000 out each year without paying CGT or any other tax. 

There is no CGT on investment bonds of either type.  HH has it spot on.

If you are borderline to higher rate, the pension contributions can help to remove or reduce that.