No tax payable?

April2

SIL had a long interview with a major High Street bank yesterday - she was seeking advice on how best to invest £150k so as to make income. I wasn't in on the interview but gather the advice was to let them distribute and manage the money (for a %) and they'd guarantee 5% (but hoped to make 7%).

The thing that worries me is she mentioned she was told the income would not be taxable and I think she's interpreted that as meaning no income tax would be payable. Now I know if her income is below her income tax allowance, that would be the case but I think she may have been confused with terminology because she mentioned Capital Gains Tax too and I can't see how CGT could have anything to do with interest from cash investments.

Anyway, another thing which concerns me is the FSA £35k guarantee if she 'hands over' the whole £150k to, for all intents and purposes, one bank. Would only £35k be protected?

cheerfulcat

It sounds as though the bank is trying to sell your SIL an investment bond, from which 5% p/a may be taken as " income ", classed for tax purposes as a return of capital. This is almost certainly not a cash deposit account of any kind.

April2

cheerfulcat wrote: »

It sounds as though the bank is trying to sell your SIL an investment bond, from which 5% p/a may be taken as " income ", classed for tax purposes as a return of capital. This is almost certainly not a cash deposit account of any kind.

Thanks. You may be right.

Just to be clear, is such a "return on income" not subject to any tax then? I'd have thought it would be liable to income tax at the very least.

oldfella

I think the gain is treated as income in the year you cash it in.

anyway - do not buy investments from a bank - they are expensive and poor value for money.

dunstonh

It is subject to tax and if it was called tax free then it is a clear misrepresentation of the product. Not unusual for bank sales reps though.

Corporation tax is paid within the investment and dividends and interest distributions within the funds are taxed in the normal way. There is no personal liability for Capital gains tax but there could be further income tax to pay on surrender or other chargeable events.

The 5% is not guaranteed. That is the annual maximum that can be withdrawn without creating a chargeable event. Investment returns have to meet the 5% to ensure the capital value doesnt drop.

Anyway, another thing which concerns me is the FSA £35k guarantee if she 'hands over' the whole £150k to, for all intents and purposes, one bank. Would only £35k be protected?

Investments have higher protection than savings accounts and life assurance even more (this product is protected under the FSCS life assurance limits).

Your SIL is foolish (got to be blunt here) for going to a bank insurance sales rep to seek financial advice. She is just asking for expensive, low quality investments from a low skilled sales rep who wont even be allowed to use the term adviser from next year.

markelock

anyone could get her 5%. that's a pretty poor return on that amount.

If she owes any money to anyone, is it not worth clearing those debts first?

dunstonh

anyone could get her 5%. that's a pretty poor return on that amount.

Its not a return. Its a tax allowance.

April2

dunstonh wrote: »

Your SIL is foolish (got to be blunt here) for going to a bank insurance sales rep to seek financial advice. She is just asking for expensive, low quality investments from a low skilled sales rep who wont even be allowed to use the term adviser from next year.

I texted her some of your comments and, when entering 'IFA' and my village name into Google, found that what I'd always thought of as an Insurance Brokers a few doors away, is an IFA too. SIL's asked me to make an appointment for her there.

Mikeyorks

April2 wrote: »

found that what I'd always thought of as an Insurance Brokers a few doors away, is an IFA too.

But .... do check they have Investment expertise. She's not (apparently) looking for Insurance or a Mortgage. She needs to talk to an IFA with the right skill set for 'investing for income'!

dunstonh

April2 wrote: »

I texted her some of your comments and, when entering 'IFA' and my village name into Google, found that what I'd always thought of as an Insurance Brokers a few doors away, is an IFA too. SIL's asked me to make an appointment for her there.

A lot of "brokers" could no longer act as brokers after rule changes a few years back (or least it was no longer cost efficient to do so so they became intermediaries for insurance and brought more IFAs in house. Historically, many brokers did have IFAs as well but the brokerage was what was mainly done over the counter.