20 Year Old Investment Bond

Canyack

I am a basic rate tax payer and just over 20 years ago I took out a (non ISA) investment bond with Aviva and have not added to nor withdrawn funds from it. My understanding is that the annual 5% non taxable withdrawal allowance rolls over and I could now withdraw the original sum invested in its entirety without incurring a chargeable event tax liability. The potential taxable status of the remaining funds remains less clear, the advice from Aviva frustratingly rather ambiguous but seems to be that I could withdraw further funds down annually without paying tax on them providing that additional income did not tip me over into the higher tax band. I have looked into getting some purely one off categoric advice from a financial advisor at a fair hourly rate but basically they seem to want a percentage of the total value and that is not a cost effective proposition at all for something that is almost certainly already at their finger tips and not requiring any work as such on their part whatsoever.

Is anyone please able to provide informed advice/confirmation about both aspects and perhaps based upon personal experience with a similar scenario? Thanks very much.

dunstonh

My understanding is that the annual 5% non taxable withdrawal allowance rolls over and I could now withdraw the original sum invested in its entirety without incurring a chargeable event tax liability.

No.  
The 5% is deferred and not tax free.  They are added back on if you surrender policy segments.

 the advice from Aviva frustratingly rather ambiguous but seems to be that I could withdraw further funds down annually without paying tax on them providing that additional income did not tip me over into the higher tax band.

Aviva do not have advice permissions and won't be giving advice.
However, yes, any future draws will be subject to chargeable gain calculations and assessed on your income tax bands.

 I have looked into getting some purely one off categoric advice from a financial advisor at a fair hourly rate but basically they seem to want a percentage of the total value and that is not a cost effective proposition at all for something that is almost certainly already at their finger tips and not requiring any work as such on their part whatsoever.

FAs retail their products of their employer or linked company.   So, if you see FAs, that is inevitable.

It is possible that you would have been better off seeing an IFA over the years to manage the investment bond into other tax wrappers on a tax-efficient basis.    

RunsFromRobots

@dunstonh I'm in a similar position. I invested £20k in an investment bond with Aviva in 2019 and (at the time of writing) is now worth £39k.

How much interest would I have to pay if I were to "cash it in"?

poseidon1

RunsFromRobots said:

@dunstonh I'm in a similar position. I invested £20k in an investment bond with Aviva in 2019 and (at the time of writing) is now worth £39k.

How much interest would I have to pay if I were to "cash it in"?

Aviva should be able to tell you what the 'chargeable event gain' could be on total encashment on a 'what if' basis (sounds like around £19k in your case).

Topslicing relief in essence allows you to divide that gain by the number of years you held the bond (say 6 years in your case) and add that result to your other taxable income in the year of encashment ( 2024/25).  

£19k divided by 6 is around £3k, add this to your total expected taxable income  for the current year and only if this takes your total income above  the 40% tax threshold will you face a higher rate income tax liabilty on the bond gains.  Needless to say if you are already a 40% tax payer (without accounting for bond gains) it would be inadvisable to totally encash.

See below more detailled coverage of the investment bond taxation regime, which regrettably you may find heavy going -

https://techzone.aberdeenadviser.com/public/investment/Taxation-of-bonds

In the meantime, you can encash 6 times 5% of your original investment ( ie £6,000) on a tax deferred basis and without triggering an immediate taxable  chargeable gain. Aviva can also guide you on the best way to achieve that outcome.

In passing, a little surprised you invested in a potentially complicated investment product with little or no understanding of how it will be eventually taxed. Investing in a stocks and shares ISA  (with Aviva) would have eliminated all tax complications.

Linton

poseidon1 said:

RunsFromRobots said:

@dunstonh I'm in a similar position. I invested £20k in an investment bond with Aviva in 2019 and (at the time of writing) is now worth £39k.

How much interest would I have to pay if I were to "cash it in"?

…
In passing, a little surprised you invested in a potentially complicated investment product with little or no understanding of how it will be eventually taxed. Investing in a stocks and shares ISA  (with Aviva) would have eliminated all tax complications.

I think it’s rather unfair to blame the op for lack of knowledge of investment bond taxation. At that time, well up to around 2000, anyway, investment bonds were pretty much the default investment for small investors who had no understanding of investing and were probably using an advisor. They required no specialist knowledge, the returns were often guaranteed to some extent and they are not subject to the volatility of the stock market. Plus they needed no ongoing support/maintenance.

Before easy direct access to investments was available they were arguably the best choice outside a pension.

RunsFromRobots

poseidon1 said:

RunsFromRobots said:

@dunstonh I'm in a similar position. I invested £20k in an investment bond with Aviva in 2019 and (at the time of writing) is now worth £39k.

How much interest would I have to pay if I were to "cash it in"?

Aviva should be able to tell you what the 'chargeable event gain' could be on total encashment on a 'what if' basis (sounds like around £19k in your case).

Topslicing relief in essence allows you to divide that gain by the number of years you held the bond (say 6 years in your case) and add that result to your other taxable income in the year of encashment ( 2024/25).  

£19k divided by 6 is around £3k, add this to your total expected taxable income  for the current year and only if this takes your total income above  the 40% tax threshold will you face a higher rate income tax liabilty on the bond gains.  Needless to say if you are already a 40% tax payer (without accounting for bond gains) it would be inadvisable to totally encash.

See below more detailled coverage of the investment bond taxation regime, which regrettably you may find heavy going -

https://techzone.aberdeenadviser.com/public/investment/Taxation-of-bonds

In the meantime, you can encash 6 times 5% of your original investment ( ie £6,000) on a tax deferred basis and without triggering an immediate taxable  chargeable gain. Aviva can also guide you on the best way to achieve that outcome.

In passing, a little surprised you invested in a potentially complicated investment product with little or no understanding of how it will be eventually taxed. Investing in a stocks and shares ISA  (with Aviva) would have eliminated all tax complications.

Thank you for the thorough reply. I spotted a mistake in my post. I invested in 2009 (not 2019) so it has been 16 years.

I only invested in this product as I had £20k not doing very much at the time and on the advice of an IFA (he wanted me to invest more).

poseidon1

RunsFromRobots said:

poseidon1 said:

RunsFromRobots said:

@dunstonh I'm in a similar position. I invested £20k in an investment bond with Aviva in 2019 and (at the time of writing) is now worth £39k.

How much interest would I have to pay if I were to "cash it in"?

Aviva should be able to tell you what the 'chargeable event gain' could be on total encashment on a 'what if' basis (sounds like around £19k in your case).

Topslicing relief in essence allows you to divide that gain by the number of years you held the bond (say 6 years in your case) and add that result to your other taxable income in the year of encashment ( 2024/25).  

£19k divided by 6 is around £3k, add this to your total expected taxable income  for the current year and only if this takes your total income above  the 40% tax threshold will you face a higher rate income tax liabilty on the bond gains.  Needless to say if you are already a 40% tax payer (without accounting for bond gains) it would be inadvisable to totally encash.

See below more detailled coverage of the investment bond taxation regime, which regrettably you may find heavy going -

https://techzone.aberdeenadviser.com/public/investment/Taxation-of-bonds

In the meantime, you can encash 6 times 5% of your original investment ( ie £6,000) on a tax deferred basis and without triggering an immediate taxable  chargeable gain. Aviva can also guide you on the best way to achieve that outcome.

In passing, a little surprised you invested in a potentially complicated investment product with little or no understanding of how it will be eventually taxed. Investing in a stocks and shares ISA  (with Aviva) would have eliminated all tax complications.

Thank you for the thorough reply. I spotted a mistake in my post. I invested in 2009 (not 2019) so it has been 16 years.

I only invested in this product as I had £20k not doing very much at the time and on the advice of an IFA (he wanted me to invest more).

OK, in that case an ISA alternative would have been limited to around £7,200 so not much of an option if you had significantly more to invest.

On the plus side if you have taken no withdrawals since 2009, you have around £16k you can immediately access on a tax deferred basis with no problems, but better still your £19k gain can be divided by 16 years rather than 6. So unless you are already a 40% tax payer or  at  the borderlines thereof, you should be able to fully encash with no further tax liabilities beyond the deemed 20% already  taxed at source. 

Have a word with Aviva to scope out your possibilities, they seem to have been quite helpful to other OPs I have liased with, each holding similar Aviva bond products.

The original OP of this thread provided no figures by way of his original investment or current value of his bond, but perhaps my responses to you can assist him together with Aberdeen Adviser's technical note.