Investment Bond Withdrawal

JTilley

Hi all,

I currently have some money tied up in an investment bond, and I believe I have calculated my withdrawal amount correctly in order to not be liable to a tax charge, however I am just looking for some confirmation.

Initial investment = £20,000
Withdrawn = £6,000
The bond has been active for 18 years, therefore £18,000 can be withdrawn tax-free (£20,000 x (18 x 5%))
£6,000 has already been withdrawn, leaving me with £12,000 remaining of tax-free withdrawal.

I will also have earned £24,500 in the 23/24 tax year, so my basic rate remaining is £25,770. This means that with the BR remaining and the tax free withdrawal, I could withdraw £37,770 without incurring a charge.

The bond is currently valued at £32,052.58.

My intention is to draw out £22,552.58.

This would be split between (23/24): 
Savings Account: £2,552.58
Lifetime ISA: £4,000
S&S ISA: £16,000

This would then leave £9,500 to be withdrawn in the 24/25 tax year, split between:
Lifetime ISA: £4,000
S&S ISA: £5,500

I currently have no money in an ISA, so I have the full £20,000 annual allowance available.

I have also chosen to place some in a Lifetime ISA due to helping with a deposit on my first property in the future.

I would appreciate if someone could help me out by confirming if my calculations are correct, and if not helping me out with what I may have missed.

Thanks

JTilley

I should also add that it is likely I will be a higher rate earner in the next couple of years, so I am withdrawing these funds so that I am not charged an extra 20% on withdrawal once I change tax bands

RWvsSP

Is it an onshore or offshore bond?

JTilley

It is an onshore bond

Linton

Isn't it a bit late to draw down money from the bond in the 23/24 tax year? I guess you mean 24/25 and 25/26.  Apart from that I believe your calculation is correct.

JTilley

Linton said:

Isn't it a bit late to draw down money from the bond in the 23/24 tax year? I guess you mean 24/25 and 25/26.  Apart from that I believe your calculation is correct.

Yes I did mean 24/25 and 25/26. Thanks for your response!

JTilley

JTilley said:

Linton said:

Isn't it a bit late to draw down money from the bond in the 23/24 tax year? I guess you mean 24/25 and 25/26.  Apart from that I believe your calculation is correct.

Yes I did mean 24/25 and 25/26. Thanks for your response!

Would an option to withdraw it all so that I still won't incur a tax charge, and not risk incurring one in 25/26 in case I earn more money than expected. To do this I could keep the excess over the ISA allowance in a separate account, and once the 25/26 tax year starts, apportion it into the 2 ISAs?

Linton

JTilley said:

JTilley said:

Linton said:

Isn't it a bit late to draw down money from the bond in the 23/24 tax year? I guess you mean 24/25 and 25/26.  Apart from that I believe your calculation is correct.

Yes I did mean 24/25 and 25/26. Thanks for your response!

Would an option to withdraw it all so that I still won't incur a tax charge, and not risk incurring one in 25/26 in case I earn more money than expected. To do this I could keep the excess over the ISA allowance in a separate account, and once the 25/26 tax year starts, apportion it into the 2 ISAs?

From your figures it would appear that you can withdraw the lot in the 2024/2025 year keeping within the basic rate tax band and thus incurring no extra tax.  If you time the withdrawal for later in the tax year you would only have to wait a few months for paying the final amount into your 2025/2026 ISA.

Note that even if the withdrawal did push you into the higher rate tax band, "top slicing" would apply which enables you to spread your gains over the life of the bonds for the purposes of determining tax due.  This would not help if your earnings alone had put you into a higher rate tax band.

JTilley

Linton said:

JTilley said:

JTilley said:

Linton said:

Isn't it a bit late to draw down money from the bond in the 23/24 tax year? I guess you mean 24/25 and 25/26.  Apart from that I believe your calculation is correct.

Yes I did mean 24/25 and 25/26. Thanks for your response!

Would an option to withdraw it all so that I still won't incur a tax charge, and not risk incurring one in 25/26 in case I earn more money than expected. To do this I could keep the excess over the ISA allowance in a separate account, and once the 25/26 tax year starts, apportion it into the 2 ISAs?

From your figures it would appear that you can withdraw the lot in the 2024/2025 year keeping within the basic rate tax band and thus incurring no extra tax.  If you time the withdrawal for later in the tax year you would only have to wait a few months for paying the final amount into your 2025/2026 ISA.

Note that even if the withdrawal did push you into the higher rate tax band, "top slicing" would apply which enables you to spread your gains over the life of the bonds for the purposes of determining tax due.  This would not help if your earnings alone had put you into a higher rate tax band.

Thank you very much, I really appreciate this!