Withdrawing Cash From a Personal Investment Plan

PARALLEL

Hi Everyone,

Can anyone offer some advice? My wife has POA for her mothers Persoanl Investment Plan (PIP) with Scottish Widows. We are going to have to start using this money to pay for her care home fees next year. I don't know much about these plans, but have read that any withdrawal is subject to tax on the whole amount of withdrawal at the owners current tax rate, as it is treated as unearned income. She has a pension and state pension that keeps her £200 below the 20% tax bracket per annum. Is it true that any amount of withdrawal will be subject to 20% tax ( and a tax return must be completed as self assessment), or is it just the gain against the money invested that is taxable? Another area suggests it might be subject to CGT on the gain, but we have no idea on the value of the investenet cash she put into this originally if this were to apply. It's very confusing.

dunstonh

Can anyone offer some advice?

Not on this site.  What you get here is discussion only. Not advice.

My wife has POA for her mothers Persoanl Investment Plan (PIP) with Scottish Widows.

Halifax used the PIP internal brand for both onshore investment bonds and unwrapped unit trusts.      The taxation on both of those is very different.   So, you would need to know which it is.  Both now operate under the SW brand.   Although different parts of SW.

So, I would suggest, if you cannot tell from the SW or original Halifax paperwork, which type of investment wrapper it is, then phone SW up and ask them whether it is an investment bond or a unit trust.

PARALLEL

Yes, my mistake dunstonh. Not advice, but discussion. Thank you for picking up on that.

Yeah, paperwork is basic, we only have the annual statement, which just gives performance versus the last report. No info on the structure. I'll get my wife to call them tomorrow and see if we can find out what camp it sits in. Maybe I can report back and you can comment on how to move forward. Thanks for the direction.

PARALLEL

Dunstonh, I'd like to thank you for the point in the right direction. She called SW and she has an investment bond, subject to tax on the gain only. We were able to establish the initial investment, and the up to date value, and calculate the tax due when we come to draw down for care home fees.

dunstonh

PARALLEL said:

Dunstonh, I'd like to thank you for the point in the right direction. She called SW and she has an investment bond, subject to tax on the gain only. We were able to establish the initial investment, and the up to date value, and calculate the tax due when we come to draw down for care home fees.

One other thing to be aware of is that investment bonds are not included any in any local authority means test for care.   So, when you look at the savings & investments of an individual, you do not include the balance of the investment bond in the means test.   So, be on guard against drawing out from the investment bond first if there are other savings/investments available to use.

Also, onshore investment bonds are considered as tax paid for the basic rate.    So, there would only be an additional tax on the gains if the gain, after top-slicing relief, takes it into the higher rate band.