Investment Bond - Tax?
Richie7
Posts: 77 Forumite
Good Afternoon,
I'm just wondering if someone could give me a bit of advice regarding my parents Investment Bond.
10 years ago a financial adviser (whose now in the wind shall we say), set up a bond for them. They have made withdrawals each year, and are now looking to surrender it.
At the time they were told there would be no tax liability . This is not the case. According to the company they hold it with, there is a profit on the bond of just over £14,000.
I have tried to look at this myself, but won't deny I am confused over whether or not they will have a tax bill upon surrender. I'm not very good with this kind of thing!
They are both pensioners now, retired, and are basic rate payers. They receive their pension each week, and my dad has a lowly pension from his old job that pays an extra £45 per month.
Between them I am sure this won't push them into the higher rate band, am I correct? And they only have to pay anything if they break into the higher rate band?
I have read a few conflicting accounts elsewhere - and if anything it has just served to confuse me even more!
Thank you anyone for any assistance you can give.
Richard.
I'm just wondering if someone could give me a bit of advice regarding my parents Investment Bond.
10 years ago a financial adviser (whose now in the wind shall we say), set up a bond for them. They have made withdrawals each year, and are now looking to surrender it.
At the time they were told there would be no tax liability . This is not the case. According to the company they hold it with, there is a profit on the bond of just over £14,000.
I have tried to look at this myself, but won't deny I am confused over whether or not they will have a tax bill upon surrender. I'm not very good with this kind of thing!
They are both pensioners now, retired, and are basic rate payers. They receive their pension each week, and my dad has a lowly pension from his old job that pays an extra £45 per month.
Between them I am sure this won't push them into the higher rate band, am I correct? And they only have to pay anything if they break into the higher rate band?
I have read a few conflicting accounts elsewhere - and if anything it has just served to confuse me even more!
Thank you anyone for any assistance you can give.
Richard.
0
Comments
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Good Afternoon,
I'm just wondering if someone could give me a bit of advice regarding my parents Investment Bond.
10 years ago a financial adviser (whose now in the wind shall we say), set up a bond for them. They have made withdrawals each year, and are now looking to surrender it.
At the time they were told there would be no tax liability . This is not the case. According to the company they hold it with, there is a profit on the bond of just over £14,000.
I have tried to look at this myself, but won't deny I am confused over whether or not they will have a tax bill upon surrender. I'm not very good with this kind of thing!
They are both pensioners now, retired, and are basic rate payers. They receive their pension each week, and my dad has a lowly pension from his old job that pays an extra £45 per month.
Between them I am sure this won't push them into the higher rate band, am I correct? And they only have to pay anything if they break into the higher rate band?
I have read a few conflicting accounts elsewhere - and if anything it has just served to confuse me even more!
Thank you anyone for any assistance you can give.
Richard.
It's unlikely they will have to pay any tax.
Let's qualify that statement a little, as it makes a few assumptions.
1. I'm assuming the £14,000 profit is referred to as the "chargeable gain". This means that each of your parents would have a £7,000 gain potentially liable to income tax.
2. I'm assuming the bond is an onshore bond not an offshore bond. If it's offshore, then your parents will each need to be paying income tax on a £7,000 gain. However, most bonds sold 10 years ago were onshore bonds (Ask the provider which it is if you are unsure).
If it is an onshore bond, then basic rate tax has already been paid by the product. This means your parents will only be liable for further tax if they are pushed into the higher rate tax bracket.
To see if higher rate tax is applicable, we use something called "top-slicing".
Essentially, you take the gain (£7,000 each), divide it by the complete number of years held (10) and look at the result. In this case, £700.
Now, if you add £700 to each of your parents' income this year, would any of that be liable for higher rate tax? If no, then there is no tax to pay. If yes, then there will be a tax liability.
Hope that helps.
HH.I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.0 -
HappyHarry wrote: »It's unlikely they will have to pay any tax.
Let's qualify that statement a little, as it makes a few assumptions.
1. I'm assuming the £14,000 profit is referred to as the "chargeable gain". This means that each of your parents would have a £7,000 gain potentially liable to income tax.
2. I'm assuming the bond is an onshore bond not an offshore bond. If it's offshore, then your parents will each need to be paying income tax on a £7,000 gain. However, most bonds sold 10 years ago were onshore bonds (Ask the provider which it is if you are unsure).
If it is an onshore bond, then basic rate tax has already been paid by the product. This means your parents will only be liable for further tax if they are pushed into the higher rate tax bracket.
To see if higher rate tax is applicable, we use something called "top-slicing".
Essentially, you take the gain (£7,000 each), divide it by the complete number of years held (10) and look at the result. In this case, £700.
Now, if you add £700 to each of your parents' income this year, would any of that be liable for higher rate tax? If no, then there is no tax to pay. If yes, then there will be a tax liability.
Hope that helps.
HH.
Thank you very much for that! You've pretty much just spelled out exactly what I calculated this morning, so it does appear there is no tax liability. They will certainly not be pushed into the higher rate tax band.
I guess it's true that you shouldn't read too much on the net! I was quite confident at first, until a few other sites began to make me question the above!0
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