Gains on policies

olbas_oil

I hold some with profits bonds, that I have had for 23 years. I understand that the 'gain' is not subject to CGT, but is added to income. I am a higher rate tax payer (nowhere near additional rate!).

I don't really understand top-slicing relief - or at least I don't think it makes any difference in my case. The overall gain is £14000 - top slicing gives an annual gain of about £600, but that makes no difference to my tax band. The whole gain gets taxed at 40%.

But my wife is taxed at basic rate. If I assigned the policy to her, would she be able to surrender it for basic rate?

poblomov

Based on your figures, if her income plus the sliced gain is still within the basic-rate band, yes it should all be taxable at max 20% if you assign it to her first. And, if it is an onshore bond, the tax should be covered by the notional tax credit

poseidon1

A little bit confused by your assertion that you would be taxed at 40% on the entire gain. This would only be the case for an offshore bond per below -:

https://www.mandg.com/adviser/tech-matters/investments-and-taxation/taxation-of-investment-bonds/offshore-bonds-taxation

Assuming it is actually a UK situs bond, you would receive the 20% notional credit mentioned by @poblomov above if encashed in your own name, so a net 20% tax charge in that scenario.

However agree it makes far more sense to utilise your wife's abundant basic rate tax headroom to avoid a tax charge completely and assign the bond for her to encash.

olbas_oil

https://forums.moneysavingexpert.com/discussion/comment/82107114#Comment_82107114

You're absolutely right. On last year's return, I was so outraged by seeing the 40% charge, that I missed the 20% 'minus Notional tax from gains on life policies' .