Chargeable Event ?


L

Little Mick

Dear Group,

Can anyone advise.
I have just received notification of a chargeable event on my investments.
These investments were made from my redundancy / early retirement package.
My main income is from my works pension, approx £10.000 per annum after tax.
With approx £200 per month from "with-profit" bonds.
Does the group think that I should fill in a tax self assessment form.
Or does this only apply to people in the higher tax bracket.
I don't wish to ignore this notification, for fear of tax evasion.
I would welcome any advice.

Thanks
Little-Mick
 
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J

John Boyle

Little Mick said:
Dear Group,

Can anyone advise.
I have just received notification of a chargeable event on my investments.
These investments were made from my redundancy / early retirement package.
My main income is from my works pension, approx £10.000 per annum after tax.
With approx £200 per month from "with-profit" bonds.
Does the group think that I should fill in a tax self assessment form.
Or does this only apply to people in the higher tax bracket.
I don't wish to ignore this notification, for fear of tax evasion.
I would welcome any advice.
A copy of the certificate will be sent to HMR&C anyway.

I suspect this has arisen due to an encashment (in full or in part) of a
Life Company Investment Bond,

You will only have tax to pay, or need to fill in a tax form, if the
amount of gain shown on the form, when divided by the number of years
shown on the form, when added to your taxable income for the tax year in
which the certificate applies, would take your income into the higher
rate tax band.
 
R

Roger Mills

In an earlier contribution to this discussion,
Little Mick said:
Dear Group,

Can anyone advise.
I have just received notification of a chargeable event on my
investments. These investments were made from my redundancy / early
retirement package. My main income is from my works pension, approx
£10.000 per annum after tax. With approx £200 per month from
"with-profit" bonds.
Does the group think that I should fill in a tax self assessment form.
Or does this only apply to people in the higher tax bracket.
I don't wish to ignore this notification, for fear of tax evasion.
I would welcome any advice.

Thanks
Little-Mick
If you take annual income in excess of 5% of the sum invested from a
with-profits bond, the excess over 5% is potentially taxable - and generates
a "Chargeable event" on each anniversary of the bond - which is what the
notification is referring to.

However, this 'gain' is taxed at 20% for standard rate taxpayers and 40% for
higher rate taxpayers. The good news is that 20% is deemed to have already
been paid on it - so if you're a standard rate payer, there's no more to
pay. You don't need to tell the Taxman unless you need to fill in a return
for some other purpose. If you *do* fill in a return, you enter the amount
of the gain and the amount of tax deemed to have been paid (as per the
notification) - and you'll find that it doesn't affect the bottom line.
--
Cheers,
Roger
______
Email address maintained for newsgroup use only, and not regularly
monitored.. Messages sent to it may not be read for several weeks.
PLEASE REPLY TO NEWSGROUP!
 
J

John Boyle

Roger Mills said:
In an earlier contribution to this discussion,


If you take annual income in excess of 5% of the sum invested from a
with-profits bond,
It is wider than that. It covers all life investment bonds, (the fund is
irrelevant, not just W/Profits))
the excess over 5% is potentially taxable - and generates
Again, it is actually a bit different to that, it is only if the
cumulative withdrawals to date exceed 5% for each year since the
investment was made, up to a maximum of 100%. So you could take 6% per
annum starting in month 13 and it would year 7 before a chargeable
event.
a "Chargeable event" on each anniversary of the bond - which is what the
notification is referring to.

However, this 'gain' is taxed at 20% for standard rate taxpayers and 40% for
higher rate taxpayers. The good news is that 20% is deemed to have already
been paid on it - so if you're a standard rate payer, there's no more to
pay.
Unless the 'top slicing' calculation takes you into the higher rate
band.
You don't need to tell the Taxman unless you need to fill in a return
for some other purpose. If you *do* fill in a return, you enter the amount
of the gain and the amount of tax deemed to have been paid (as per the
notification) - and you'll find that it doesn't affect the bottom line.
Unless top slicing takes you over.
 
R

Roger Mills

In an earlier contribution to this discussion,
John Boyle said:
It is wider than that. It covers all life investment bonds, (the fund
is irrelevant, not just W/Profits))

Again, it is actually a bit different to that, it is only if the
cumulative withdrawals to date exceed 5% for each year since the
investment was made, up to a maximum of 100%. So you could take 6% per
annum starting in month 13 and it would year 7 before a chargeable
event.

Unless the 'top slicing' calculation takes you into the higher rate
band.

Unless top slicing takes you over.

Yes, I'm sure you're right in your expansion to cover more general cases.

However, in this specific case, the OP did mention a with-profits bond. It's
not unreasonable to assume that he started drawing on it on Day 1. Unless
he's got a *lot* more income which he hasn't told us about, this bond ain't
going to take him into top slicing territory.

But your clarification is valid in case anyone tries to apply my previous
answer to different circumstances.
--
Cheers,
Roger
______
Email address maintained for newsgroup use only, and not regularly
monitored.. Messages sent to it may not be read for several weeks.
PLEASE REPLY TO NEWSGROUP!
 
L

Little Mick

Roger Mills said:
In an earlier contribution to this discussion,



Yes, I'm sure you're right in your expansion to cover more general cases.

However, in this specific case, the OP did mention a with-profits bond. It's
not unreasonable to assume that he started drawing on it on Day 1. Unless
he's got a *lot* more income which he hasn't told us about, this bond ain't
going to take him into top slicing territory.

But your clarification is valid in case anyone tries to apply my previous
answer to different circumstances.
--
Cheers,
Roger
______
Email address maintained for newsgroup use only, and not regularly
monitored.. Messages sent to it may not be read for several weeks.
PLEASE REPLY TO NEWSGROUP!

I would like to thank both John And Roger for your response
and advice you have offered.
You were correct Roger about the bonds.
I invested in two bonds five years ago, one with Clerical Medical and
another with Scottish Equitable. For the first 4 years I took an income from
them of 5%.
I never received notice of a chargeable event during those 4 years.
I was advised one year ago by an IFA that i should increase from 5% to 7.5%
because the bonds were not performing well.
On reflection it would seem that the extra 2.5% has caused a chargeable
event.
Once again I thank you for your comments.

Little-Mick
 
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R

Roger Mills

In an earlier contribution to this discussion,
Little Mick said:
and advice you have offered.
You were correct Roger about the bonds.
I invested in two bonds five years ago, one with Clerical Medical and
another with Scottish Equitable. For the first 4 years I took an
income from them of 5%.
I never received notice of a chargeable event during those 4 years.
I was advised one year ago by an IFA that i should increase from 5%
to 7.5% because the bonds were not performing well.
On reflection it would seem that the extra 2.5% has caused a
chargeable event.
Once again I thank you for your comments.

Little-Mick
Yes that makes sense.

As has already been said, unless the addition of the 2.5% 'gain' brings your
total taxable income into the 40% bracket (I forget the exact figure, but it
would to be above about £33,000 this tax year) you don't need to tell the
taxman, the applicable tax already having been paid.

Not sure I understand the IFA's advice. When the bond is not performing
well, the income it generates will not keep up with the 5% you were
withdrawing - let alone with 7.5% - so you'll end up running the capital
down at an alarming rate.
--
Cheers,
Roger
______
Email address maintained for newsgroup use only, and not regularly
monitored.. Messages sent to it may not be read for several weeks.
PLEASE REPLY TO NEWSGROUP!
 
L

Little Mick

Roger Mills said:
In an earlier contribution to this discussion,


Yes that makes sense.

As has already been said, unless the addition of the 2.5% 'gain' brings your
total taxable income into the 40% bracket (I forget the exact figure, but it
would to be above about £33,000 this tax year) you don't need to tell the
taxman, the applicable tax already having been paid.

Not sure I understand the IFA's advice. When the bond is not performing
well, the income it generates will not keep up with the 5% you were
withdrawing - let alone with 7.5% - so you'll end up running the capital
down at an alarming rate.
--
Cheers,
Roger
______
Email address maintained for newsgroup use only, and not regularly
monitored.. Messages sent to it may not be read for several weeks.
PLEASE REPLY TO NEWSGROUP!
I must admit that the investment didn't perform well.
IFA advised extra 2.5% be taken out and invested into a mini cash ISA which
i did.
I have now been advised to encash the two investments, ( which i have )and
take out another.
I couldn't move my money for the first 5 years due to penalties.
I don't know for sure which way to go.
I had considered putting the lump sum into an on-line high interest account
but i am not knowledgeable enough to know which is best.
It's putting trust in my IFA.

Thanks again Roger
Little-Mick
 
J

John Boyle

Roger Mills said:
Yes that makes sense.

As has already been said, unless the addition of the 2.5% 'gain' brings your
total taxable income into the 40% bracket
Not sure I understand the IFA's advice. When the bond is not performing
well, the income it generates will not keep up with the 5% you were
withdrawing - let alone with 7.5% - so you'll end up running the capital
down at an alarming rate.
Thats the idea, its a way of getting out of a crap fund as quickly as
possible without incurring a penalty. 7.5% is a common maximum penalty
free withdrawal in the first few years and may also avoid any applicable
MVA.
 
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R

Roger Mills

In an earlier contribution to this discussion,
John Boyle said:
Thats the idea, its a way of getting out of a crap fund as quickly as
possible without incurring a penalty. 7.5% is a common maximum penalty
free withdrawal in the first few years and may also avoid any
applicable MVA.
Fair enough, but it doesn't get you out *that* fast!
--
Cheers,
Roger
______
Email address maintained for newsgroup use only, and not regularly
monitored.. Messages sent to it may not be read for several weeks.
PLEASE REPLY TO NEWSGROUP!
 

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