Income tax on chargeable gain

Newly_retired

I made a chargeable gain in excess of £6000 on an insurance bond I cashed in. This moved me up into the higher rate band and depsite top slicing relief I have a bill of £600+ to pay. I had the right to take 5% tax free annually but did not do so. Can I deduct from the pay out retrospectively 5% for each of the years I held the bond in order to reduce my tax bill?

Elaine_Wilson

The 5% annual exemption does accrue if nothing is drawn out, but the bond provider should have taken this into account.

I take it that when you say you made a chargeable gain you are taking the figure from the chargeable event certificate? This would be after deducting the amounts treated as return of capital.

If the amount you received was £6,000 then, yes, some deductions would be in order.

Newly_retired

Thanks Elaine.

The amount of chargeable gain on my certificate equals the surrender value minus my original investment.
AXA said they had made no deductions for the annual 5% tax free I could have taken- and that tallies.
Is there any way I can get HMRC to take this into account before I pay their tax bill?
Also, have I any redress against my IFA who advised me to surrender this policy thus pushing me into the higher rate band when waiting just 3 months would have avoided it? Nor at that time did he mention taking the tax free 5%.
Thanks for any advice.

dunstonh

The 5% is deferred until surrender or maturity. So, when you surrendered, they were brought back into play again.

The idea is that when you are a higher rate taxpayer or close to that limit, the 5% from the bond allows you to take withdrawals to act as a form of income without paying higher rate tax. Then when you become a basic rate taxpayer later you can surrender the bond either in one go or in segments to then not pay any tax providing the top slicing calculation doesnt take you back into higher rate.

lso, have I any redress against my IFA who advised me to surrender this policy thus pushing me into the higher rate band when waiting just 3 months would have avoided it? Nor at that time did he mention taking the tax free 5%.

He wouldnt mention the 5% tax free as there isnt a 5% tax free amount.

As for redress against the IFA, that is probably not going to work. Have you any evidence that this was recommended and is the alternative going to be cheaper or improve your situation?

If it is reinvestment, then you would typically expect the adviser to reduce their commission by the amount of any cost of exit so you end up in a cost neutral position.

Newly_retired

Thanks dunstonh
OK I understand about the 5% now.
The money was re-invested via my IFA and as far as that is concerned yes I would say is cost neutral ( and hopefully a better performing investment - time will tell )
He said there might be some income tax - about £300, but it was £900, then HMRC recalculated it because of top slicing relief, so £600 approx. So that is not cost neutral. I am frustrated because I am now on a pension and basic rate tax