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  • FIRST POST
    • ArmyDilllo
    • By ArmyDilllo 15th Feb 18, 2:33 PM
    • 148Posts
    • 216Thanks
    ArmyDilllo
    Investment Bond (Tax)
    • #1
    • 15th Feb 18, 2:33 PM
    Investment Bond (Tax) 15th Feb 18 at 2:33 PM
    As I've posted in here before I'm trying to live an income tax-free existence (as approved and encouraged by the Exchequer and HMRC).

    It occurs to me that I have a sum of money in an Investment Bond attracting 20% tax at source.
    I was intending to gradually transfer this by means of 20k lump-sums, exploiting my ISA's annual allowance, and eventually eliminating the 20% tax.

    But CGT is now 10%.
    So I could also release larger amounts and half the tax liability on the difference (not exceeding my higher rate income tax band).


    But, having not suffered from CGT before, I believe there may be another personal allowance for this of 11,300.
    If so, is this in further addition to my 11,500 personal income tax allowance?
    Because my gains from these transfers will fall within this allowance so I am hoping this will also eliminate my CGT completely.

    Am I being obtuse or is this correct?
    Appreciate some further thought/guidance on this.

    { 8-]

    Many thanks in advance (including to those inevitable contributors who feel that my legitimately avoiding tax by using the very schemes put in place the Govt. for me to do just that is morally and ethically wrong. I don't. We're all entitled to our opinions. Best of luck with yours.).

    2016 : Realised 103,000.00 savings (banked)
    2017 : Realised 97,000.00 savings (banked)
    2018 : Realised savings (banked)

    20.4% avg annual portfolio growth since 2004.

    Retired 17:30 hrs, Friday 30th September 2016, aged 56, and luvvin' it!!
Page 1
    • HappyHarry
    • By HappyHarry 15th Feb 18, 2:46 PM
    • 774 Posts
    • 1,133 Thanks
    HappyHarry
    • #2
    • 15th Feb 18, 2:46 PM
    • #2
    • 15th Feb 18, 2:46 PM
    You have a CGT allowance of 11,300 per year. This is in addition to your personal income tax allowance.

    However, gains from an investment bond will be liable for income tax, not CGT.

    You need to understand if the gain from selling all or part of the investment bond will either;
    (i) Push you into the higher rate tax bracket (you need to look into 'top-slicing')
    (ii) Whether or not the gain on the investment bond would be enough to push your income up enough so that you start losing your personal allowance (no top-slicing used for this calculation)
    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.
    • robber2
    • By robber2 15th Feb 18, 2:50 PM
    • 357 Posts
    • 301 Thanks
    robber2
    • #3
    • 15th Feb 18, 2:50 PM
    • #3
    • 15th Feb 18, 2:50 PM
    deleted as Harry beat me to it


    regards

    Rob
    • ArmyDilllo
    • By ArmyDilllo 15th Feb 18, 3:42 PM
    • 148 Posts
    • 216 Thanks
    ArmyDilllo
    • #4
    • 15th Feb 18, 3:42 PM
    • #4
    • 15th Feb 18, 3:42 PM
    Thanks replies on another forum indicate that I should maybe elaborate a little further.

    I am 56, single, retired, with no dependents;
    My Nephew and Niece are heirs in my Will. A fact of which they are unaware (I wish I could be around to see their faces ).

    I will draw from a SIPP an annual income of 11,500 (plus the 25% tax-free lump sum) until 2026, when my state pension kicks in.
    This gives me 15,500 of tax free income.
    To top this up I have made sacrifices to use my annual allowances and now enjoy a large sum in ISA's, all of which can be withdrawn, at any time, tax-free.
    I have a further sum in an Investment Bond (L&G), growing at up to 7.5% p.a. and attracting 20% income tax, at source.

    I had planned to use up my 20k annual ISA allowance by transferring lump sums from my Investment Bond, which I believe will use it up in about six years (seven if I'm lucky).
    But that, added to my SIPP taxable income, only totals 31,500.
    In order to incur a tax event I would need to withdraw in excess of 13,500 to put me into a higher rate tax bracket.
    But that still gives me that 13,500 I could withdraw and invest loose, saving the 20% I'm charged within the Bond.

    It occurs to me that CGT is 10%, so I could save 10% of the tax on the money retained in the Bond by withdrawing enough of it each year to fill my ISA allowance, and stay within my basic rate income tax allowance, re-investing it 'loose' and accepting a liability for CGT on the growth.
    As this sum is only likely to be 10k pa, and my appetite for risk is quite low, I believe I will easily maintain growth to within the CGT allowance of 11,300.

    Unless the two allowances (income and CGT) somehow cancel each other out, I see them both fitting into the above plan separately and leaving me a total annual exemption worth 22,800.

    I forsee the growth being so small that I should be able to complete the withdrawal from my bond earlier and eliminate my previously anticipated 20% tax liability, not only down to 10% (CGT) but, via the CGT allowance, to zero.

    Please excuse me if I'm being dense.
    But I can't find anything that says I can't do this.
    My main desire for my retirement is to pay as little tax (of any kind) as is legitimately possible, with the knowledge and approval of HMRC.



    PS.
    I have some 30k available to top-slice immediately, and expect another 10k next, so withdrawl (for now) is not an issue, just the growth outside the Bond.
    Last edited by ArmyDilllo; 15-02-2018 at 4:01 PM.
    2016 : Realised 103,000.00 savings (banked)
    2017 : Realised 97,000.00 savings (banked)
    2018 : Realised savings (banked)

    20.4% avg annual portfolio growth since 2004.

    Retired 17:30 hrs, Friday 30th September 2016, aged 56, and luvvin' it!!
    • dunstonh
    • By dunstonh 15th Feb 18, 4:03 PM
    • 95,311 Posts
    • 62,908 Thanks
    dunstonh
    • #5
    • 15th Feb 18, 4:03 PM
    • #5
    • 15th Feb 18, 4:03 PM
    It occurs to me that I have a sum of money in an Investment Bond attracting 20% tax at source.
    it isnt quite 20% as insurers can use reliefs still. Tends to bring down the average to 13%.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • HappyHarry
    • By HappyHarry 15th Feb 18, 4:19 PM
    • 774 Posts
    • 1,133 Thanks
    HappyHarry
    • #6
    • 15th Feb 18, 4:19 PM
    • #6
    • 15th Feb 18, 4:19 PM
    I agree.

    You will only pay the 10% CGT of you have capital gains of over 11,300 in the tax year.

    e.g. If you had 100,000 in an OEIC, and it made 10% one year (numbers for simplicty sake, NOT for projections!) then the OEIC is now worth 110,000.

    If you sold 20,000 of the OIEC to move to an ISA, then the capital gain realised would be (20,000/110,000) x 10,000 = 1,818

    Given the growth and withdrawals you are predicting, it is unlikely that you would ever be above your CGT allowance, and therefore your could be reducing your 20% tax (or 13% as dunstonh points out) to 0%.

    You need to be aware of the impact of income tax when surrendering the bond as mentioned in my post above.

    You should also be aware that OEICs can pay interest / dividends which are taxable. The key concern here would be dividends, as the dividend allowance is reducing to 2,000 from April 2018.
    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.
    • ArmyDilllo
    • By ArmyDilllo 16th Feb 18, 7:24 AM
    • 148 Posts
    • 216 Thanks
    ArmyDilllo
    • #7
    • 16th Feb 18, 7:24 AM
    • #7
    • 16th Feb 18, 7:24 AM
    That's great news!
    Thanks very much for explaining chaps.
    You've confirmed my thoughts, which hastens my transfer plans.
    2016 : Realised 103,000.00 savings (banked)
    2017 : Realised 97,000.00 savings (banked)
    2018 : Realised savings (banked)

    20.4% avg annual portfolio growth since 2004.

    Retired 17:30 hrs, Friday 30th September 2016, aged 56, and luvvin' it!!
    • ArmyDilllo
    • By ArmyDilllo 11th Apr 18, 8:40 AM
    • 148 Posts
    • 216 Thanks
    ArmyDilllo
    • #8
    • 11th Apr 18, 8:40 AM
    • #8
    • 11th Apr 18, 8:40 AM
    A big THANK YOU to those fellow members who helped me out with this.


    I asked for opinions about some cash I had (have) in an Investment Bond, currently paying 5.98% p.a. avg. but subject to tax at source
    Got some very good insights which helped me decide to begin withdrawing that cash and investing it elsewhere.
    Although I'd maxed out my ISA allowances then, I wanted to get that chunk out in the last tax year so I could release another tranche during this tax year (withdrawals are time and amount sensitive).
    Then I could invest it once my new ISA allowance became available this year (which it now has).

    In the meantime I invested it in shares just normally and outside of any tax efficient vehicles, as any growth would likely fall within my CGT personal allowance.
    This afternoon I sold that investment (to move it over to my ISA) for around a 9.0% profit.
    Not bad for a month, especially in current conditions.
    That's the annual equivalent of around 103.0% p.a., compared to the 6% p.a. L&G have been giving me.
    Only about 1.5k on this year's 20k ISA allowance, but every little helps and now I can keep that profit to pay my broker fees for a while.
    I still haven't even sold 25% of that stake (I think those shares have a bit further left to grow for a while).

    The shares I have sold will likely keep going up some more, but I'm hoping they will fall back again soon, allowing me to buy them back again.
    Not a fan of our current crop of politicians and have every faith that one (in particular) will open his trap wide enough again soon to facilitate this fall.
    Thanks again, I'm having a small (HAH!) G&T in your honour.
    Last edited by ArmyDilllo; 11-04-2018 at 8:44 AM.
    2016 : Realised 103,000.00 savings (banked)
    2017 : Realised 97,000.00 savings (banked)
    2018 : Realised savings (banked)

    20.4% avg annual portfolio growth since 2004.

    Retired 17:30 hrs, Friday 30th September 2016, aged 56, and luvvin' it!!
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