NU Portfolio Step Down Option

Pentley

I took out a NU Portfolio Step Down Option 20 years ago and have received 5% income each year. I would now like to pass the Gift ie. cash in the bond, for my two sons is this possible and are there any tax implications.

dunstonh

If you surrender it, it will be assessed for tax purposes in your situation.  If you assign it to your sons and they surrender it, it will be assessed on their tax situation.

Gift rules apply either way.

Linton

This sounds like an Onshore Investment Bond with the 20X5% being a repayment of the original contribution. If so:

Assuming you have made no withdrawals other than the 5%s and you intend to withdraw the whole amount, you are liable for income tax in the current tax year on all gains made throughout the life of the bond.  This is where life gets complicated...

The income tax is calculated on the basis of the 20% basic rate having been paid and so only includes the higher rate component. If you are already a higher rate tax payer than you will have to pay 20% tax on the gains.  I dont know exactly what happens if it makes your total income >£100K.

However if the inclusion of the gains takes you from basic rate into the higher rate band then some magic called "top-slicing" applies whereby your average gain per year is calculated and if this value would not put you into a higher rate band then you avoid the higher rate tax.  Otherwise otherwise.

The only other tax aspect is that if you die within 7 years of making the gifts the value will be included as part of your estate for calculating IHT.  This applies to any gifts, not just the proceeds of selling bonds.