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Deficiency relief

full surrender of offshore bond

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client invested £50,000 in offshore life assurance bond in 2008, surrendered in 2019 for £35,000. No withdrawals made at anytime. Is the loss of £15,000 available as deficiency relief to set off against income subject to HRT.  I am confused by the calculation which suggests any loss is restricted to the lower of the loss or  gains on previous withdrawals. As there has been no previous gains, then is the deficiency restricted to Nil? 

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By richard thomas
17th Jan 2020 16:19

The answer to your question is to be found in a simple way - in the relevant legislation. Section 539 ITTOIA sets out the relief for a deficiency, but "deficiency" is a defined term and the definition is in s 540. You will see from s 540(3) that your client does not meet Condition B (gain arose on previous chargeable event) because there was no previous event. Deficiency relief is not a relief for a loss on a policy.

In this case HMRC's Manual, IPTM, is quite correct as I would expect it to be as I know the person who wrote it. IPTM3860 gives the same answer as the legislation.

If the client acquired the policy by assignment for money then there could be an allowable loss (s 210 TCGA 1992) but not if they were the original policyholder.

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Replying to richard thomas:
RLI
By lionofludesch
18th Jan 2020 10:40

richard thomas wrote:

In this case HMRC's Manual, IPTM, is quite correct as I would expect it to be as I know the person who wrote it.

Can you ask him to re-write the rest of the manuals ?

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Replying to lionofludesch:
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By richard thomas
18th Jan 2020 14:42

I'm sure he'd be happy to - at least the ones he knows about. But he is adamantly opposed to the kiddie speak/Sun reader approach required now so the powers that be wouldn't let him near the Manuals.

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