ReAssure (formerly Skandia) Maximum Investment Plan - tax on maturity?

br1anst0rm

My wife and I set up an MIP (with the then Skandia Life) back in 1998 on the recommendation of a financial adviser. The main selling point was that - provided it was maintained for 10 years or more - any withdrawals and/or eventual payout on maturity would be free of personal and capital gains tax.

This seemed attractive, in case we found ourselves in a higher tax bracket in our later careers; and it also seemed a prudent way to save in case we needed a lump sum in later life to go towards property purchase, school fees, or [eventually!] medical or care home costs.

We paid an annual premium of £4,000. It hasn't proved a particularly brilliant investment. We now know that this was in part because of substantial and front-loaded fees and commission, which incentivised advisers to sell MIPs. But we kept the MIP going, and took the options to extend it after 10 and 20 years. In 2016, following a change in the tax rules to cap the annual premium amount, we reduced the annual premium to £2,000 (below the £3,600 cap which had been introduced) in order to safeguard the "qualifying policy" status which gave the tax benefit.

In fact we have not (yet) needed to cash in any of the policies which make up the MIP to meet immediate needs, so we kept the MIP going. We are both now retired and receiving state and employment-related pensions.

Skandia Life became Old Mutual Wealth, which is now part of ReAssure. We have just had a letter from ReAssure informing us that the MIP is due to mature on 8 June, and inviting us to either submit a claim for the maturity value to be paid out, or to consider other options (which are not spelled out - the letter suggests we call ReAssure to find out more).

The strange and worrying point is that the ReAssure letter also says that "Income tax may need to be paid on some or all of any investment gain this policy has made. This only applies if the gain is a 'chargeable event gain' under HMRC rules." The letter adds that if a chargeable event gain occurs, Reassure will send a certificate; and it suggests checking with the HMRC website and helpsheets.

I find this inexplicable as well as unexpected. The detailed policy documents I have indicate clearly that the MIP is a "qualifying policy" under HMRC rules and thus no tax should be payable. The HMRC guidance note HS320 appears to confirm this, and says that "....Your insurer can tell you whether your policy was a qualifying policy, as they will know the details and history of your policy.”

So…. I have asked ReAssure, by email and phone, to confirm that our MIP is a qualifying policy and that no tax will be payable if we collect the maturity payout. I have had an auto- acknowledgement to my email message but no reply. The ReAssure call centre cannot explain any other options available on maturity, nor give an answer on the MIP's qualifying status other than to say that the relevant teams are "looking into it…."

We do not now have a financial adviser from whom we might seek help or an opinion. I find it worrying and ominous that ReAssure cannot give a straight and prompt answer to a simple question. Are they just slow and inefficient (in which case I may simply have to wait for their response)? Or is there anything else I can do to clarify the situation?

dunstonh

The strange and worrying point is that the ReAssure letter also says that "Income tax may need to be paid on some or all of any investment gain this policy has made. This only applies if the gain is a 'chargeable event gain' under HMRC rules." The letter adds that if a chargeable event gain occurs, Reassure will send a certificate; and it suggests checking with the HMRC website and helpsheets.

That is a correct statement by them.

I find this inexplicable as well as unexpected. The detailed policy documents I have indicate clearly that the MIP is a "qualifying policy" under HMRC rules and thus no tax should be payable. The HMRC guidance note HS320 appears to confirm this, and says that "....Your insurer can tell you whether your policy was a qualifying policy, as they will know the details and history of your policy.”

Not sure why you find it inexplicable or unexpected. It's a standard statement that is technically correct.

 I find it worrying and ominous that ReAssure cannot give a straight and prompt answer to a simple question. 

It's not a simple question because it can depend on the history Of the plan and your individual tax situation. ReAssure does not hold advice permissions, so they cannot give opinions or advice. They can only give factual statements based on what they know.

The call centre staff aren't going to have a clue what the answer is, so it would have to be referred to a back office team.

Are they just slow and inefficient (in which case I may simply have to wait for their response)?

Yes, normally ReAssure are very slow.

Or is there anything else I can do to clarify the situation?

If it has maintained its qualifying status, then it will be free of tax. If it has not retained its qualifying status, then it will become potentially taxable.

Even with a qualifying policy, there are some niche situations (for example, where “relevant capital payments” are made or where certain anti‑avoidance rules bite) that can create a taxable gain, but those are rare

poseidon1

OP you may find the following article, useful in perhaps explaining why you may not get a definitive response from Reassure as to the tax treatment of your particular MIP on maturity

https://www.sheffieldmutual.com/help-and-support/help-and-support-archive/a-guide-to-qualifying-life-policies/

From what you have related, your MIP being a pre March 2012 policy which had subsequently been amended to comply with the post 2012 premium cap, falls under the category of Restricted Relief Qualifying Policy (RRQP).

Interestingly you state your variation to reduce the premium below the cap did not occur until 2016, and of course you excercised the option to extend the term well beyond your original 10 years which also appears to be a trigger for the RRQP regime as set out below -

https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual/iptm2080

In all fairness to Reassure with they limited technical support for the legacy policies they 'warehouse', the complexity of the HMRC changes to the MIP regime would be challenging even for a fully resourced active life company.

The upshot is, if they do issue a chargeable event certificate for policy gains on maturity ( based on the specific history of your policy), you will need to rely on top slicing relief to avoid higher rate income tax on the gain, if the gain when added to your other income pushes you into higher rate tax.

br1anst0rm

Thanks, @dunstonh, for your comments. I understand the difference between providing factual statements and offering advice and opinion.

I was, and am, seeking the facts. Is my MIP [still] a "qualifying policy" or not? That is a factual question, to the provider, about the policy they administer. Just needs a Yes or No answer (although if the answer turns out to be No, I would expect an explanation). HMRC's own guidance - which I quoted - says "… your insurer can tell you… as they will know the details and history of the policy." Quite so.

It's not encouraging to learn that ReAssure are known to be very slow - especially when their notification of the policy maturity and request for instructions only gave us five working days' notice before the MIP's maturity date. Am I supposed to offer them sympathy because the rules are complex? If they take on 'legacy' policies, they ought to be resourced to administer them efficiently.

I will need to study the linked information provided by @poseidon1. His comments indicate that the decision to extend our policy in 2016 (following the introduction of a premium cap from 2013) may have affected the qualifying status of the policy. I will look at the information provided by Skandia at the time (which was the basis for the decisions we took on what to do about the policy), to see whether that provides any greater clarity.

dunstonh

If they take on 'legacy' policies, they ought to be resourced to administer them efficiently.

ReAssure have recently been bought by Phoenix.

Companies like ReAssure and Phoenix bought the unwanted customers of dead or disinterested insurance companies. The systems they inherited were often decades obsolete. Records were very poor and were run on a complete shoestring. In time, Phoenix will get on top of it. However, in the early years, it is difficult for them to do much about the servicing until they understand the extent of the issues that need resolving and then a plan how to deal with it.

Am I supposed to offer them sympathy because the rules are complex?

No, sympathy is not required. However, they're not your tax advisors either. Plus, do you really expect a call centre worker to know the intricacies of taxation on very niche plans from a different era?

br1anst0rm

ReAssure have recently been bought by Phoenix. Companies like ReAssure and Phoenix bought the unwanted customers of dead or disinterested insurance companies. The systems they inherited were often decades obsolete. Records were very poor and were run on a complete shoestring. In time, Phoenix will get on top of it. However, in the early years, it is difficult for them to do much about the servicing until they understand the extent of the issues that need resolving and then a plan how to deal with it.

Well, @dunstonh, I don't want to get into a pointless argument, but the flip response to your description above is "my heart bleeds for them…". Companies have to take responsibility and be accountable for the products they manage… even where they may have inherited them from others.

…they're not your tax advisors either.

Indeed not. And I'm not looking to ReAssure for tax advice. I'm looking, as I said, for information on the product which they have been managing.

If the call centre doesn't have that information, I would expect them to find out from, or pass me on to, the staff in the office who do have - or can find - the details which I seek.

poseidon1

Seems to me your most productive approach is to ask Reassure on a 'what if' basis, what would be the gain reported on a chargeable event certificate if you did elect to receive an 8 June maturity.

Armed with that information you can then determine whether you would in fact have an income tax exposure thereon, bearing in mind any gain would be net of a 20% life company tax credit.

Have you familiarise yourself with the tax regime for non qualifying life policies?

br1anst0rm

Well, another day… and some encouraging news to report.

I had been frustrated and concerned by ReAssure's somewhat imprecise letter and their call-centre's apparent inability to provide information. The picture of the company struggling to administer and manage its services was not encouraging.

My email and phone call to them has however now produced a result.

I have just received two letters (sent by secure email) from ReAssure. One, from the "Admin" team, simply confirms that our MIP is a "qualifying policy". The other, from the "Operational Actuarial" team, also says the MIP is a qualifying policy, and adds that "… any withdrawal will not incur a liability to UK Income Tax (provided the policy's qualifying status is maintained). This means that there will be no Chargeable Gain on any withdrawals, and a Chargeable Event Certificate will not be issued."

This is very welcome. It now enables us to consider and make decisions on what to do now that the policy has reached its maturity date.

It does however suggest that the rather vague maturity-notification letter received last week must have been a generic text which (although it carried a reference to our policy number) was simply a standard formula sent to any and all policy holders on maturity.

My thanks both to @dunstonh (for the background on ReAssure) and to @poseidon1 for the very helpful advice and the links to detailed guidance on HMRC policy. I have learned a lot - but I hope that I will never need to go too far down the rabbit-hole of taxation policy and rules. I think there are many other more agreeable and satisfying ways to spend one's time!